Chapter 7 Personal Bankruptcy
Chapter 7 is the most commonly filed type of bankruptcy. It can be used by individuals, married couples filing jointly, sole proprietorships, corporations and partnerships. In general, Chapter 7 is the fastest and most simple form of bankruptcy. If you qualify for a Chapter 7, it is usually preferred over Chapter 13 bankruptcy because for most debtors the entire process is finished in five months, as opposed to three to five years under Chapter 13’s repayment plan. Once your case is discharged you are able to start over immediately, free from all your discharged debt.
Chapter 7 Colorado Bankruptcy Exemptions
Chapter 7 personal bankruptcy is preferable to Chapter 13 for many debtors because of the bankruptcy exemptions. You are allowed to keep all of your property that is classified as exempt. Bankruptcy exemptions are controlled by Colorado law.
Some of the current exemption amounts and categories in Colorado are:
- $60,000 in equity in your home (the “homestead exemption”);
- $5,000 in equity in your car;
- Household goods up to a total of $3,000;
- $1,500 total for clothing of the debtor and dependents;
- $2,000 total for jewelry/watches of the debtor and dependents;
- $1,500 in personal library and family pictures;
- $20,000 in things you need for your job (tools, books, etc.);
- Any amount in an IRA, 401(k), or pension plan;
- Your right to receive certain benefits such as social security, unemployment compensation, veteran’s benefits, public assistance, and pensions – regardless of the amount; and
- $50,000 cash surrender value of a life insurance policy.
These amounts are doubled for married couples filing jointly, except for the homestead exemption. The homestead exemption applies only to the equity you have in your home. For example, if you own a home worth $100,000 but owe $40,000 on a mortgage, you have $60,000 worth of equity in the home and would be able to keep the home because of the bankruptcy exemption.
Additionally, the value of your property is not determined by what you paid for it. Rather, it is determined by its present value. That means that the value is not what it would cost to replace the items anew, but by what their going rate in used condition would be. For most items this is drastically less than the original purchase price.
If you have any non-exempt assets, under Chapter 7 bankruptcy they will be seized by the bankruptcy trustee, sold (“liquidated”) and the proceeds will be distributed to your creditors.
At Wink & Wink we will provide you with pre-bankruptcy planning in order to maximize your exemptions if you are going to file under Chapter 7. There are many ways to protect your assets under the law and keep them even after filing bankruptcy.
Call us today for a free consultation.
What Debts Are Dischargeable Under Chapter 7?
The following debts can be wiped out by a Chapter 7 bankruptcy:
- Personal loans
- Credit cards
- Repossession deficiencies (i.e. the amount you owe on your car after a repossession)
- Auto accident claims against you, except for claims resulting from driving while intoxicated
- Medical bills
- Many Judgments
- Business debts
- Leases
- Guaranties
- Negligence claims
- Tax penalties over 3 years old where a return was filed
What Debts Are NOT Dischargeable Under Chapter 7?
The following debts cannot be wiped out by Chapter 7 bankruptcy:
- Debts incurred by fraud or false pretenses;
- Debts incurred by a false statement in writing (such as false credit application);
- Debts incurred by embezzlement or larceny;
- Spousal support or child support obligations;
- Debts incurred by willful and malicious injury;
- Debts resulting from death or personal injury by debtor operating a motor vehicle while intoxicated;
- Criminal fines and restitution;
- Income taxes for tax years less than 3 years ago and other “priority taxes” (i.e. taxes first due within three years of the bankruptcy filing and taxes assessed within 240 days of the bankruptcy, or which are unassessed but assessable when the case is filed, are priority claims which are not subject to discharge.);
- Fines and penalties owed to a governmental unit;
- Student Loans
Secured Debts and Chapter 7
A “secured debt” is one that gives a creditor the right to take a specific item of property if you don’t pay the debt, such as a home loan or auto loan. Under Chapter 7 bankruptcy, your personal liability towards the property may be discharged, but the lien on the property held by the creditor passes through the bankruptcy unchanged.
You have choices as to how to deal with your secured debts in Chapter 7 bankruptcy. First, you can “redeem” the asset. This means that you agree to pay the creditor the present value of the asset and you then keep the asset free from any further claims. Second, you can “reaffirm” the debt. Under this option, you agree to waive the discharge as to that specific debt, and you re-commit to continue to pay the creditor on the terms of the original agreement. Last, you can agree to “surrender” the asset to the creditor, freeing you of all responsibility for that debt.
At Wink & Wink, we can advise you on which option would be best for your specific secured debts, and help you in reaching any agreements with the creditors.
Who Can File Chapter 7?
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which created a means test to determine who can take advantage of the protections of Chapter 7 bankruptcy. The means test applies only to individuals with mainly consumer, not business, debt.
You will qualify for Chapter 7 if your average income for the six months prior to filing (called your Current Monthly Income) is less than the median income for Colorado for a comparably sized family. If your income is above that amount, you may still be eligible subject to a complex formula determined using IRS guidelines and your personal financial information.
If you have any further questions about Chapter 7 bankruptcy in Colorado, please contact Wink & Wink, P.C. today for a Free Consultation. We can help you eliminate your debt and gain a fresh start.