1) Do I need a bankruptcy?
You need a bankruptcy if your debts exceed your income. Many people who have more money going out every month than coming in try to keep going with continued borrowing such as refinancing their home or paying one credit card with money from another. We call this the “robbing Peter to pay Paul” syndrome. All this does is prolong the problem by increasing the debt. In this case, bankruptcy is the best solution.
2) Do I qualify for a bankruptcy under the New Bankruptcy Law?
The Bankruptcy Reform Act of 2005 changed many things about bankruptcy, but the main change was the adoption of the median income test to determine whether a person qualifies for a Chapter 7 or is required to file a Chapter 13.
Chapter 7 simply eliminates all of your debts such as credit cards, loans, payday loans, old landlords, medical bills, old car loans, and basically any other debt except most taxes, student loans, child support, property settlements from a divorce, and restitution. Chapter 13 is a three to five year repayment plan that is much more complicated and expensive.
If your family income is less than the median income for your family size in the state where you live, you qualify for Chapter 7. If you are over the median income, you can still qualify for Chapter 7 in many cases if you have certain extraordinary and necessary expenses such as child support, larger mortgages, or tax debts.
At Mile High Bankruptcy, PC., the first thing we discuss with you over the phone is whether you qualify for Chapter 7 or 13 and provide a recommendation. We have found that over 90% of the people who contact us qualify for Chapter 7.
3) Why do I feel so bad about filing bankruptcy?
In all our years of practice, we have never had a client who wanted to file bankruptcy. People have an overwhelming feeling that they have failed, that they are doing something terribly wrong, and that the consequences in the long run will be bad. All people feel a strong moral obligation to pay their debts, and feel terribly guilty that they must consider bankruptcy as an option. These feelings are based on fear.
To understand this fear and the guilt that goes with it, you must look at the real causes of bankruptcies for most people. It is not being irresponsible or bad in some way, but it is being hit with some of the devastating problems that happen in life to everyone. We have found that bankruptcies are generally caused by certain life events that wreak havoc with your finances. They are: problems with unemployment or a loss of pay; health problems; problems with a child or elderly parent; divorce; problems with a small business; or, particularly lately, problems with real estate. These problems hit everyone you know at some time in their lives, but depending on your circumstances and timing, they can be devastating to your finances through no fault of yours.
In reality, bankruptcy is your legal right to relief from your debts. It allows you to stop being overwhelmed and dragged down by your problems. The creditors who you owe can often take a tax deduction in the year in which you file, and you get a discharge order that frees you from the debts forever. If you truly can’t afford to pay, bankruptcy fixes the problem for everyone concerned. Also, in this fast paced economic world we live in, people can often reestablish credit and get back on their feet shortly after bankruptcy if they have or are able to get a reliable income source upon which to rebuild.
4) Will I lose everything if I file bankruptcy?
No. In Colorado there are fair and generous exemption laws that protect most people’s necessary property like their home, their car, their retirement, their work tools, and their household goods.
In addition, you can generally keep your house or car in Chapter 7 if you are current with the payments when you file bankruptcy and remain so after the filing, and the property is insured. You can also return property if you can’t afford it or don’t want it without having to pay any additional money at all.
Bankruptcy is not at all an intrusive process. No one comes to your home or work to examine your property or bother you in any way. Most of your involvement will be working with our office as we steer your case through the system of the United States Trustee’s Office and the Bankruptcy Court to obtain a discharge of your debts.
5) How do I get immediate protection from creditors before the bankruptcy is filed?
The process with our firm begins with a short telephone call where we answer your preliminary questions and set you for a free consultation appointment in our office. At the consultation we explain your options completely and describe the entire process from start to finish including the procedure and the cost. There is no cost for the consultation should you decide not to file, and no obligation to proceed whatsoever.
Most people who come in do need bankruptcy and elect then to hire us to be their lawyers by making a small down payment on the fees- the retainer- which allows them to IMMEDIATELY refer all creditor phone calls to us. If you can’t afford to retain us immediately, it is an easy matter for you to drop by later and do so.
This referral of your creditors to us usually stops most calls within a day or two, giving you breathing room to prepare your case without unnecessary pressure from the creditors. Also, if creditors are planning to sue you, they often stop when they hear our name because they don’t want to waste money on more lawyer fees for them if we are planning to cancel the debt in bankruptcy anyway. Our experience has been that after the referral has been made, everything calms down, and the bankruptcy can be processed in an orderly manner.
6) How much does bankruptcy cost?
There is a sliding scale for Chapter 7 bankruptcy fees in our office depending on the complexity of the case. While we can sometimes provide a close estimate over the phone, the exact cost (which includes all court costs) is determined at the initial consultation and a payment plan is worked out. Most people pay in payments as we do the work, and we have developed a payment arrangement over many years that allows folks facing bankruptcy to pay for the case in a manner that works best for them.
7) Can Bankruptcy help with student loans?
Millions of recent college graduates and current students are facing overwhelming student loan payments at a time when the job market is extremely tight and starting salaries are barely enough to pay rent, food and basic living expenses. There is often nothing left over to make payments on student loans which generally start six months after leaving school or graduation.
For all borrowers, the average student loan debt in 2011 was $23,300,with 10% owing more than $54,000, and 3% owing more than $100,000.
Is there any way bankruptcy can help?
In general, in terms of cancelling these debts, the answer is unfortunately no. The Bankruptcy Code accepts from discharge all government guaranteed loans (which are most student loans) and any debts to a non-profit educational institution such as a state college or university. While students can often apply for and receive deferments of their payments if they are unemployed, the debts continue to accrue interest, so the balances are much higher when the debt comes out of forbearance.
Bankruptcy can help, however, with the ability to repay student loans, by compartmentalizing a person’s overall debt problems into categories, student loan and non-student loan, and processing the bankruptcy to eliminate the non-student loan debt, thus making it easier to work out a practical repayment plan when the person filing becomes otherwise debt free. This is a very common and effective strategy.
For example, if during school an individual borrows $10,000 in student loans, but also borrows $10,000 in credit cards to meet expenses not covered by the loans, and also takes out a $15,000 car loan for a car they may no longer need or be able to afford, they can file a chapter 7 Bankruptcy, rid themselves of the non-student loan debts and focus on establishing a repayment plan on the student loan when the bankruptcy is complete. Another benefit of this strategy is that all creditors are “stayed” or prohibited from collecting on a debt during the pendency of the bankruptcy which can average six months or more.
This allows a person filing bankruptcy some “breathing room” from all debt problems during the pendency of the case, and a chance to contact the student loan lender to make payments on the student loan after the case is over. It is rare, but we have heard of some student lenders allowing a “administrative discharge” voluntarily to a person in bankruptcy if the person contacts them directly and the lender determines they no longer wish to pursue collection of the debt.
Student loans can also be either paid partially or in full through a Chapter 13 bankruptcy, but this is often not practical for a newly graduated student without regular, steady predictable income over the three to five year period of a Chapter 13 plan.
Finally, there is a remedy in bankruptcy called a hardship discharge, granted under the most extreme circumstances, when the court determines that payment of the debt will impose an undue hardship on the the person or their dependents. This can be a costly and difficult and is usually not available to graduates who are working or have a possible ability in the future to repay these debts by an improved economic situation which is hopefully possible when a student can finally apply their education to good use and earn a decent income.
Bankruptcy FAQ, Declaring Bankruptcy and Filing Costs for Chapter 7 and 13
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