The Things You Need To Know About Bankruptcy
- What is Bankruptcy?
- Should I file for Bankruptcy?
- How can Bankruptcy help me?
- Will Bankruptcy stop creditors from harassing me?
- What is the means test?
- What is the difference between Chapter 7 and Chapter 13?
- Do I need to hire a Bankruptcy attorney?
- Will Bankruptcy get rid of all of my debts?
- What will happen to my home and my car?
- What will happen to my credit after filing for Bankruptcy? Will I be able to get credit again?
- Do I have to file with my spouse?
- Will I get fired for filing for Bankruptcy?
- What does it cost to file for Bankruptcy?
- What is Bankruptcy? -top-
Bankruptcy is the legal process in which an individual who cannot pay their bills can get a fresh financial start. When your debts exceed your income you may want to file for bankruptcy. A person has the legal right to file bankruptcy under federal law. When you file for bankruptcy, a court order called an “automatic stay” goes into effect. The automatic stay prohibits most creditors from being able to collect debts.
- Should I file for Bankruptcy? -top-
Until you meet with our bankruptcy attorney we cannot answer that. However, chances are that if you are contemplating bankruptcy then you have already exhausted your other options. Sometimes people will contemplate bankruptcy for months or even years after it truly became a good option for them. Occasionally we may advise a client to not file for bankruptcy due to the availability of other, better options. The bottom line is if you think you need to file for bankruptcy then you are probably right.
- How can Bankruptcy help me? -top-
- Eliminate your legal responsibility to pay back most or all of your debts
- Stop foreclosure on your home and allow you the opportunity to catch up on your payments
- Prevent repossession of your car
- Stop wage garnishment, debt collection harassment, and similar creditor actions to collect debt
- Restore or prevent termination of utility services
- Gives you a fresh financial start
- Will Bankruptcy stop creditors from harassing me? -top-
As soon as you file your bankruptcy petition your creditors must stop collection activities. That means that they must stop calling you at home or work and they may not contact your family members either. If they continue after they receive notice of your bankruptcy, then you may be able to receive compensation. We highly recommend that you document every type of contact you receive by writing down dates, times, who you spoke to as well as the company associated with the attempt. Also, creditors cannot initiate or continue with any lawsuits against you or pursue any wage garnishment.
- What is the means test? -top-
The means test is a way to figure out if you are eligible for Chapter 7 bankruptcy. It is a formula that decides whether your income is low enough to qualify for chapter 7. However, this does not mean that you need to be penniless to qualify. You can still earn significant income but have significant expenses such as high mortgage, car payments, taxes and other expenses. If you are left with very little disposable income each month to pay your bills, then you will most likely be eligible for Chapter 7. The means test takes in to consideration your income over the last six months prior to filling. Higher income filers who do not qualify for Chapter 7 may then be able to qualify for Chapter 13 bankruptcy.
- What is the difference between Chapter 7 and Chapter 13? -top-
Chapter 7 is for consumers with primarily consumer debts not business debts. Consumers usually complete the whole process in 3-6 months. Chapter 7 is oftentimes referred to as a liquidation because any non-exempt property can be taken and sold (i.e., liquidated) by the Trustee to pay off your debts. Generally, people who file for this form of bankruptcy are able to keep all of their belongings except property which is valuable or has been used as collateral for a loan.
Chapter 13 is a reorganization, rather than a liquidation, that is used to pay all or part of debt over a 3-5 year period. The consumer has greater flexibility. If the consumer does not pass the means test and/or you wish to protect assets, such as your home or car that may be lost during Chapter 7, then Chapter 13 may offer the best option. In a Chapter 13, you must make a monthly payment according to the Chapter 13 Plan. The Plan calculates your payment based on multiple factors such as income and expenses.
- Do I need to hire a Bankruptcy attorney? -top-
The law allows a person to represent themselves and does not require someone to hire an attorney. We, of course are biased, and believe that you should hire an attorney. The United States Bankruptcy code is complicated and often requires more decision-making than just filling out forms. The process is difficult, and you may lose property or other rights if you are not familiar with the law. You may be able to keep more property and discharge more debt if you have a knowledgeable lawyer to help you through the process. Going through bankruptcy is a stressful process without having to learn all the complicated forms, process and understanding of the law. This all takes a lot of time and research. Petition preparers offer consumers help with preparing schedules for a lower cost than an attorney, but these folks are not lawyers and are not allowed to give you legal advice. Remember, if you choose to file on your own, the court will hold you up to the same standards as a lawyer.
- Will Bankruptcy get rid of all of my debts? -top-
Bankruptcy gets rid of most, but not all of your debt. Bankruptcy usually does not get rid of:
- Money that is owed for child support or alimony
- Most fines and penalties owed to government agencies
- Student loans
- Debts not listed on the Bankruptcy petition
- Most taxes and debts incurred to pay for those taxes (example credit card to pay for taxes)
- Debts incurred from willful or malicious harm or while driving intoxicated
- Secured debts. (This is a debt where the creditor has a lien on the property and can repossess if you do not pay. Most common are your home or car)
- What will happen to my home and my car? -top-
A common myth when filing for bankruptcy is that you will lose all that you own. In most cases you are able to retain most if not all of your property.
In most cases you will not lose your home when you file for bankruptcy as long as you are current on your mortgage. If you can afford to continue to make your payments, you may be able to keep your home. If you don’t make the required loan payments the lender may be able to take or sell your home during or after bankruptcy. The Colorado homestead exemption also protects up to $60,000 (or $90,000 if you are 60 years or older) of equity in your home. Equity is the difference between what you owe and what your home is worth. The concept of equity applies to all secured debt, including cars.
If you have fallen behind on your mortgage, then you probably want to file Chapter 13 bankruptcy. Chapter 13 bankruptcy may allow you to pay for what your home is currently worth versus what your loan amount is through a process called cram down.
Similar rules are in effect for your vehicle. The Colorado vehicle exemption allows you to keep up to $7,500 ($12,500 if 60 or older or disabled) in equity on vehicles that you own. If you file a joint petition, then this amount doubles. If you use your car for work, then you may be protected up to $20,000 in equity. In most cases you will be able to keep your vehicle if you file for bankruptcy as long as you continue to make the loan payments. You may also be able to negotiate a lower principle amount based on what your car is actually worth which could then lower your monthly payments.
- What will happen to my credit after filing for Bankruptcy? Will I be able to get credit again? -top-
Chances are if you are looking to file for bankruptcy, then your credit is not great from falling behind on your bills. In this case bankruptcy will probably not make it any worse. The bankruptcy will stay on your credit report for 10 years. However, by filing for bankruptcy you will be in a much better position and will be able to get new credit within a short amount of time, a clean slate if you will. Also, make sure that after you file for bankruptcy that your debts show a negative balance. If not, you should file a dispute with the credit agency.
- Do I have to file with my spouse? -top-
There is no legal requirement that you have to file jointly. However, your spouse will be liable for any joint debt and creditors will likely come after them. Another benefit for filling jointly is that you receive double the exemptions. If only one spouse has majority of the debt, then only that spouse may want to file.
- Will I get fired for filing for Bankruptcy? -top-
Federal law prohibits employers from firing a person for filing for bankruptcy. Your employer will also not get any notice that you have filed. However, possible future employment opportunities may be affected by your filing. The new employer may want to run a credit check and they will see that you have filed bankruptcy. If happens to you, then you may want to explain your situation to your prospective employer before it comes up.
- What does it cost to file for Bankruptcy? -top-
To be honest, this depends. Every bankruptcy case is different. We charge less for uncomplicated cases and more for more complex ones. We always offer a flat rate once we have a chance to look over what is involved in your case. We always strive to minimize fees. The other fees not part of the flat attorney fees that you need to be aware of are:
- Colorado court filing fee $335/$310 (Ch. 7/Ch. 13)
- Credit counseling: pre-filing and pre-discharge (Total of $40 or $60 depending on if it is done over the phone or online)
- Credit check $35 individual or $55 joint