Chapter 7 Bankruptcy FAQ

Chapter 7 Bankruptcy Protection Attorney Serving The Western Slope, Eagle, Garfield + Mesa Counties

Get Answers to Frequently Asked Chapter 7 Bankruptcy Questions in Colorado

Attorney with over 30 years of experience. Helping discharge debt for bankruptcy clients in Eagle, Vail, Minturn, Edwards, Avon, Glenwood Springs and surrounding areas and counties. We know you have questions, and we can help provide answers and peace of mind.

 
1What is bankruptcy?
Bankruptcy is a legal remedy afforded to individuals and business suffering from debt. By filing for bankruptcy, you may be able to completely eliminate most of your debt, if not all, or agree to a payment plan to pay all debts to your creditors over a fixed amount of months.
2What are the differences between a Chapter 7, 13 and 11 bankruptcy?

Chapter 7 is complete liquidation (although you keep all your “exempt assets”) and all dischargeable debts are discharged forever.

Chapter 13 is a structured payment plan made through the Bankruptcy Court. A plan is either 3 or 5 years, depending upon your income. At the end of that time, you will continue to pay on any secured debt you want to keep. All debts are discharged after the 3 or 5-year plan.

Chapter 11 is for large corporations who want to hold off creditors and reorganize.

3Who can file bankruptcy?
There are many factors to determine whether one qualifies, such as income, expenses, type of debt, residency, assets.
4I am married and filing for bankruptcy, does my spouse also have to file for bankruptcy?
Although joint petitions are very common, your spouse does not also have to file for bankruptcy if you are filing for bankruptcy. However, if you and your spouse are both obligated to repay the same debts, it is advisable that a joint petition be filed as the non-filing joint spouse remains liable for the debt. By filing jointly, you can save money on the filing fees and legal fees.
5Is my co-signor still liable for a debt if I file for bankruptcy?
Yes. If someone you know has co-signed on a loan for you and now you are filing for bankruptcy, the lender can demand that the co-signing individual repay the entire loan. Your bankruptcy filing has no bearing on the co-signer. The co-signer is always responsible for the debt if the principal defaults.
6Which bankruptcy chapter is best for me?
This is determined after assessing each case individually and depends upon debtor’s income, expenses, assets, and desired outcome. At this time our firm only handles Chapter 7 cases.
7When can I file bankruptcy?
This is determined for each unique case. Some of you may have garnishments and judgments that are crippling your ability to survive. Some of you are being threatened and harassed to a point of desperation. Some are facing massive lawsuits that can be stopped immediately with a bankruptcy filing. Others have to plan to manage their complex assets and complicated expenses before filing to a degree that can take months.
8How often can I file for bankruptcy?

If you have previously filed for Chapter 7, then you must wait eight years before you can file for another Chapter 7. If you have previously filed for a Chapter 13, then you must wait six years before you can file for a Chapter 7.

If you are trying to file for a Chapter 13, then you must wait four years from a prior Chapter 7 filing, or two years from a previous Chapter 13 filing.

9When will my garnishment stop?
Garnishments will stop only after a bankruptcy case has been filed.
10What is the process if I decide to file for bankruptcy?
The Bankruptcy process involves several steps and takes 3-5 months to be finalized. The first step that every individual bankruptcy requires is a Credit Counseling Course. Each individual debtor must complete this course prior to filing. The course is offered online, ranges from $10-$20, and takes about 1.5 hours to complete. The second step involves the preparation and filing of documents with the Bankruptcy Court. Approximately one month after we file your case, you must attend a “Meeting of the Creditors,” in which the trustee assigned to your case, will ask you questions regarding your filing and financial situation. If the trustee is satisfied that you have been truthful, and you qualify for Bankruptcy, he will recommend that you be granted a discharge (if filing for Chapter 7) or that you continue with your monthly payment plan (if filing for Chapter 13).
11How long does the process take?
Depending on the chapter of bankruptcy filed, a case can be closed 3 to 9 months after filing. As soon as the petition is filed, all collection activity and contact from creditors stops.
12Can I give property away to get it out of my name before I file?

No. Anything transferred prior to filing bankruptcy could be subject to being taken back by the Bankruptcy Court. Transfers can go back as far as 4 years. Any transfers that have happened within that amount of time should be discussed with an attorney to determine if it is acceptable.

In addition, payments amounting to $600 or more to creditors within 90 days before filing will be retrieved by the trustee to be fairly spread among all creditors.

You cannot pay select creditors before filing. The trustee will take back any payments made over $600 paid within 90 days of filing and distribute the funds equally among all creditors.

13What proof do I have to show for my income?
Pay stubs must be provided if you are an employee. If you own a business, you may be asked to provide profit and loss statements along with business taxes.
14Am I responsible for notifying my creditors that I filed for bankruptcy?
No. The Bankruptcy Court notifies each creditor you listed in your petition that you have filed for bankruptcy. If you have failed to list a creditor, the debt to that creditor will not be discharged. You will continue to be responsible for that debt during the pendency of your filing and upon completion.
15Who or what is a “Trustee?”
The trustee appointed to your case is a lawyer hired by the U.S. Department of Justice, U.S. Trustee division. The trustee reviews each case to make sure it is properly prepared and complete. The trustee is responsible for identifying and collecting “non-exempt” property that will be sold (or bought back from the court by the debtor) to pay in a fair manner to creditors.
16Do I have to go to court?
You are required to attend a “meeting of creditors” otherwise called a “Rule 341 Hearing” before a bankruptcy trustee, approximately 30 days after a case is filed. You are required to attend with your attorney.
17What is the “Meeting of Creditors” or “Rule 341 Hearing” or “Trustee Meeting?”
These are names for the same thing. About 30 days after filing, you, with your attorney, meet with the trustee to answer questions under oath. The trustee reviews your photo ID and social security card to verify your identity. Purposes of the hearing include verifying that you actually read, understood and signed the petition and schedules and all of your assets and debts were disclosed. The trustee may ask questions with important legal consequences about how assets were valued, when and where they were acquired, income, nature of debts, money owed to you, your intent regarding secured debts, etc.
18I have business debt, can a business file bankruptcy?
A business can file a Chapter 7 liquidation. If a business is no longer in operation and has no assets, it may not need protection from creditors. In most business cases, an owner has to provide personal guarantees to vendors and lenders. Accordingly, a person individually might need protection from creditors for business debts if they were personally guaranteed. Therefore, an individual may need to file bankruptcy because of business debts.
19What property can I keep?
If you are filing a Chapter 7 bankruptcy, you are only allowed to keep property the court deems as exempt. The type and value of exempt property is set by statute. Luxury items such as RVs, boats, expensive art, expensive jewelry, sporting equipment and firearms, are examples of non-exempt assets.
20Will someone come to my home to look at my property?
No. On very rare occasions, the trustee will ask to have an item appraised.
21What happens to my house and car?
If you have a mortgage and a vehicle that is financed, you can typically keep such items as long as you can pay for them. If your vehicle is paid for and is under the exemption, you can keep it.
22What happens to my 401k or IRA?
Typically, IRS approved retirement accounts such as 401k and IRA are completely exempt and you will be able to keep them.
23What debts get listed in my bankruptcy?
Every debt must be listed, even the ones you intend to pay back and the debts that are non dischargeable.
24Can I pay some debts and not pay others?
No. All debts must be disclosed and all debts must be treated equally. After the case, you are free to pay any creditor you want, although you do not have to.
25How much does bankruptcy cost?

Legal fees vary depending on the type of chapter you file, the total amount of debt, and the complexity of the case. In addition to the legal fees, there are court fees associated with any bankruptcy filing. The average range is $1,800 - $2,500 in legal fees. The State of Colorado filing fee for Chapter 7 is $335.00. We cover other costs within our fees, such as credit report, research and data fees.

We Are Not a Low Cost Bankruptcy “Preparer”!

Our services include analyzing legal issues, developing strategies and timing to preserve the maximum value of assets and discharge all the debt allowed under the law.

We also search court filings, property records, and background information to try our best to discover potential negative issues and obstacles to a successful case.

We arrange to stop collection activity and stop – or delay, foreclosures and repossessions.

We negotiate buy-backs of non-exempt assets for the least possible cost.

Other, low-cost preparers and attorneys do not do these things and leave you open to devastating consequences because of missed Issues and insufficient data. We encourage you to do your homework and investigate the low cost advertisements. Most of the attorneys are not even located in Colorado – they hire preparers to fill out the pleadings and schedules. They do not check for accuracy. They do not analyze legal issues or defend you or the case. Many fees and costs are not disclosed or are hidden from you until it is too late.

We contend it is not possible to properly prepare and present a complete bankruptcy case, and represent you before the U.S. Trustee and Federal Bankruptcy Court for a low “discount” fee that does not include a full range of service.

26Do I have to pay the full bankruptcy fee up front?
Yes. Your fees must be paid in full before a case can be filed with the court. If you owe attorney’s fees they must list themselves as a creditor in your case which creates an unacceptable conflict of interest.
27Are there any debts that are not discharged in bankruptcy?
Not all debts are discharged (forgiven) in bankruptcy. The most common debts that bankruptcy does not apply to are taxes, student loans, and child support obligations.
28Can I be denied a bankruptcy discharge?
If it is revealed that you have failed to disclose valuable assets, or have engaged in fraud prior or during the pendency of your petition, your case may be dismissed and you will be denied a discharge.
29Can I lose property?
If you have too much equity in real estate, vehicles or other personal property, you risk having that property sold by the trustee to give the proceeds to creditors. If you have significant equity, we usually advise not to proceed with bankruptcy.
30What are the primary benefits of filing Chapter 7 bankruptcy?
  • All dischargeable debts can be discharged forever.
  • Creditors can never contact you again.
  • Your credit will usually improve faster than leaving unresolved debt on your credit report.
  • Clients usually report that eliminating the pressure of debt, lawsuits and collections helps to lessen stress and strain in life.
31Can a creditor continue to contact me after I have filed for bankruptcy?
As soon as your bankruptcy is filed, creditors are required by law to stop all collection efforts against you. They are prohibited from calling you, sending you notices, filing lawsuits against you, or collecting on any judgments entered against you. This fundamental relief afforded by Bankruptcy laws is called “Automatic Stay.”
32Are there any tax consequences associated with the debt discharged in my bankruptcy?
In bankruptcy, there are no tax consequences associated with the discharge of your debts. The thousands of dollars forgiven in your bankruptcy will not be considered income for tax purposes. In contrary, debts settled outside of bankruptcy, such as through debt consolidation and settlements, will have to be declared as income on your federal and state tax returns.
33Is there any debt that doesn’t go away in bankruptcy?
Yes. Examples of non-dischargeable debts are child support, spousal maintenance, criminal restitution, recent taxes and government guaranteed school loans.
34How long will bankruptcy show up on my credit report?
If you are considering filing for a Chapter 7, be prepared for your filing to stay on your credit report for up to ten years. If you are filing for a Chapter 13 bankruptcy, then it can show up on your credit for up to seven years. Keep in mind that this does not mean that you will not be able to obtain new credit or that your credit score will remain the same for that period of time. Most of you will be able to obtain new credit and see an increase in your credit score shortly after the bankruptcy is finalized.
35How long will it take for my credit score to get better?
Usually, right after filing a bankruptcy, your credit starts getting better as all the negative/delinquent status stops being reported. Please be advised that the bankruptcy filing will remain on your credit report for 10 years.
36How long before I can get a mortgage?
This depends upon how you manage income, spending and credit after filing. Most of our clients can get a mortgage within 3 -4 years after filing bankruptcy. However, this is determined by the lender and its standards and practices. Consensual Liens, such as a deed of trust on real estate are not removed.
37Can I keep some credit cards and accounts if I file for bankruptcy?
Even though you must include all debts in your bankruptcy petition, you may be able to keep some accounts by continuing to make monthly payments or “reaffirming” specific debts. A Reaffirmation refers to an agreement between you and an existing creditor, in which you waive the forgiveness of a debt that would otherwise be discharged in the your pending bankruptcy proceeding.

PRE-BANKRUPTCY DOs + DON’Ts

DO

Continue making payments on vehicles or property you intend to keep. Creditors secured by a car or truck can usually repossess the vehicle without notice to  you anytime you are in default in your payments. It will ordinarily take longer for other creditors (including those secured by other property) to act on a debt that is in default.  If you have a mortgage on your home, keep paying, stay current and you will likely be  able to keep your home. 

DO NOT

Borrow from or withdraw 401k, IRA, and ERISA qualified savings  and retirement plans to pay bills. Early withdrawal of these funds makes you liable for  penalties and taxes which may not be discharged in bankruptcy. ERISA and 401K funds  are exempt from creditors in bankruptcy, (except deposits made within 6 months before  filing) and many other states. If you don’t use these funds, you are very likely to have  them to draw on after bankruptcy. 

DO NOT

Borrow money on your home to pay unsecured (i.e. credit card,  utility or medical) bills. If you take out a second mortgage on your home, you may be  converting debt which would have been discharged in bankruptcy into debt which you will still have to pay in order to keep your home. These additional payments could be high enough to cause you to lose your home. 

DO NOT

Pay $600 or more back to relatives or business associates who have  lent you money. Payment of a total of $600 or more to an “insider” (which includes relatives and business associates) within one year before you file bankruptcy is a “preference.” The trustee may recover preferences from the person that was paid and divide the money between all of your creditors. (Payment of $600 or more to any other creditor within 90 days before the case is filed is also a preference.)

DO NOT

Put property you own into someone else’s name to avoid it being taken by creditors or the trustee. That kind of transfer is a fraud on creditors and can  result in your discharge being denied. In addition, the trustee can take the property from the person to whom it was transferred. 

POST-BANKRUPTCY DOs + DON’Ts

If we have already filed a Chapter 7 Bankruptcy for you there are some important DOs and DON'Ts which come into play during the pendency of your case.

DO

Continue making payments on vehicles or property you intend to keep. Creditors secured by a car or truck can usually repossess the vehicle without notice to  you anytime you are in default in your payments. It will ordinarily take longer for other creditors (including those secured by other property) to act on a debt that is in default. 

DO NOT

Sell or Transfer or give away any assets you have without contacting me first. The filing of your Chapter 7 Bankruptcy petition creates a Bankruptcy Estate which temporarily comes under the control of the Trustee who is assigned to your particular case. The Trustee’s job is to Liquidate (sell and reduce to cash) any property that is not exempt under State or Federal Law. Typically, few Chapter 7s that I file have any assets that are liquidated, and usually if there are likely to be assets in a case, I will have informed you of any potential Trustee liquidation before filing. Nevertheless, 

DO NOT

Sell, give away, transfer title, settle any personal injury lawsuits or otherwise dispose of any of your property while your Chapter 7 Bankruptcy is pending. 

DO NOT

Be concerned if a few creditors still attempt to contact you or send you bills or collection letters after filing. 99% of your creditors will stop harassing phone calls or threatening letters shortly after the filing of your bankruptcy. By operation of law, immediately upon the filing of your bankruptcy petition, the “Automatic Stay” goes into effect. This stay prevents all of your creditors from taking any action  to attempt to collect a debt. This includes calling you by phone at home or at work, sending collection letters, starting or continuing lawsuits against you, garnishing wages, repossessing vehicles or other security and foreclosing on your home. Occasionally, a creditor will still call or send a letter after the Notice of Commencement of Bankruptcy  case has gone out in the mail. If this happens to you, simply send a copy of this Notice to the creditor who is still contacting you or tell them to call my office to verify the filing of  your case.