Colorado Bankruptcy Lawyers

• Chapter 7 Bankruptcy
• Chapter 13 Bankruptcy

In situations in which a person’s debts exceed their ability to repay them (typically, they owe more than their annual income), bankruptcy is a way to legally reduce the debt load or make arrangements to decrease the debt burden.

Most consumer debtors consider Chapter 7 or Chapter 13 bankruptcy. Generally, Chapter 7 is for debtors with a large amount of consumer debt they wish to discharge, while Chapter 13 is for debtors who want to maintain possession of non-exempt assets that would be lost in Chapter 7 and/or the debtor has the ability to pay creditors over time.

Chapter 7 Bankruptcy

A typical Chapter 7 debtor has mostly unsecured debt, including medical bills, credit card bills, and leases, that they wish to discharge. Chapter 7 is frequently referred to as “liquidation” bankruptcy because the Trustee liquidates the debtor’s non-exempt assets to pay creditors. A Chapter 7 case can be filed by any person or entity domiciled in, residing in, or having a place of business or property in the United States.

The debtor is required to file many documents with the court when he or she files the bankruptcy petition, and throughout the case. If the debtor hires an attorney, the attorney will often begin the process by giving the debtor a checklist or fact-finding sheet to fill out. Since a bankruptcy petition is comprehensive and disclosures are mandatory, fact finding sheets are also comprehensive.

After conducting the initial fact-finding session, the attorney may pull a credit report for the debtor. This action helps in identifying all creditors and debts, and offers the opportunity to raise questions about the report. If the attorney finds that the debtor’s debts are mostly consumer debts, he or she will compile the necessary data and run a “means test.” This is a mathematical test that indicates whether or not the debtor has the potential to pay creditors over time based on their current situation. Once the attorney has all the necessary information, has evaluated the means test, and decides that filing bankruptcy is necessary, he or she will compile and file the petition, which is the first official document that the court receives indicating the debtor wants to file for bankruptcy.

After filing the petition with the court, an “automatic stay” is entered against all creditors. This stay freezes creditors’ collections and enforcement actions and their ability to create and/or enforce a lien. Freezing includes wage garnishments and foreclosure proceedings.

At that time, an interim Chapter 7 Trustee is appointed to perform administrative functions and preserve estate assets until a permanent Chapter 7 Trustee is elected. The election of the permanent Trustee occurs at a §341 creditors’ meeting, which involves the Trustee questioning the debtor under oath regarding the bankruptcy, the debtor’s assets, debts, schedules, etc. Often, the interim Trustee will become the permanent Trustee. The Chapter 7 Trustee is in charge of (1) the collection and liquidation of the debtor’s non-exempt estate assets and the subsequent distribution to creditors, and (2) investigating the debtor’s financial affairs.

• Homestead (up to $60,000, $90,000 if disabled or elderly)
• One or more vehicles/bicycles (up to $5,000, $10,000 if disabled or elderly)
• Clothing (up to $1,500)
• Watches and jewelry (up to $2,000)
• Pictures and books (up to $1,500)
• Burial sites or spaces in mausoleums
• Household goods (up to $3,000)
• Food and gasoline (up to $600)
• Business materials for purpose of carrying on gainful occupation (up to $20,000)
• Library of professional person (up to $3,000)
• Cash surrender value of life insurance (up to $50,000)
• Proceeds from casualty or fire insurance because of loss to otherwise exempt property
• Personal injury damages
• Domestic support obligations
• Others

Colorado does not allow debtors to use federal exemptions, which can sometimes be used in other states if the federal exemption is more favorable than the state exemption offered ; there is no federal wildcard exemption available in Colorado. This list is not exhaustive, there are some other exemptions available in Colorado.

For more detailed information regarding Chapter 7 Bankruptcy, see the U.S. Courts website: www.uscourts.gov

Chapter 13 Bankruptcy

For debtors who have significant assets they wish to keep (often houses), or who have a steady income stream, Chapter 13 may be a better alternative.

Chapter 13 can be thought of as a debt-repayment plan. A Chapter 13 debtor will be allowed to keep possession of their property (“debtor in possession”), but will be required to make payments over time to the Trustee. The Trustee in turn pays the money out to creditors. Chapter 13 is a decent option for debtors with secured debt and the ability to make payments (i.e. a steady stream of income).

Chapter 13 operates on the premise that the debtor is attempting to pay back most of their debt (all of their secured debt, and a portion of unsecured debt), while discharging certain non-priority debt (such as most taxes, costs of the bankruptcy, etc.).

When filing a Chapter 13 bankruptcy, the debtor goes through a similar process with the attorney regarding fact-finding. Chapter 13 cases are often more complex, requiring the creation of a plan that proposes how the debtor will pay back the debt.

After the attorney and any other advisors determine that Chapter 13 provides the best means to achieve the client’s goals, the attorney drafts and files the petition and all associated documents with the court. The repayment plan is filed along with the petition.

Next, the Trustee is appointed. The Trustee acts as the go-between in communications with debtor and creditors, and presides over the creditor meeting, which takes place approximately 30 days after the petition is filed. At this meeting the debtor must answer under oath questions from the Trustee and creditors regarding the debtor’s financial affairs.

Creditors are given a chance to accept or reject the terms of the repayment plan, and the court reviews the terms of the plan at a hearing. When all are satisfied, the plan is approved and the debtor begins making payments, according to the plan, to the Trustee, who distributes the money among creditors, also according to the plan.

Eligibility to file for Chapter 13 is limited to individuals with secured debt of less than $1,010,650, and unsecured debt of less than $336,900. The debtor must also have some regular income and must complete a credit counseling course no more than 180 days prior to filing the petition.

For a more detailed and technical explanation of the Chapter 13 process please see the U.S. Courts website: www.uscourts.gov

If you are contemplating a Chapter 7 or Chapter 13 bankruptcy filing, consider meeting with northern Colorado lawyer Brian Boyes, who offers free 30-minute in-office initial bankruptcy consultation. He will consider your objectives, goals, and circumstances to make the best out of your bankruptcy filing, including considering alternatives to bankruptcy. Don’t let the fog of bankruptcy linger over your head. Do something to give yourself a fresh start!