Frequently Asked Questions
What are Colorado Bankruptcy Exemptions?
I can’t make my mortgage payments. Can bankruptcy help me?
Will bankruptcy stop harassing phone calls from my creditors?
What debt relief is available in bankruptcy?
Are there any reasons to file Chapter 13 if you qualify for Chapter 7?
I have heard that back taxes are not wiped out in bankruptcy, is that true?
Will I lose my retirement account if I file for bankruptcy?
Should I use my 401(k) to pay my debts?
What will happen to my life insurance policy if I file for bankruptcy?
How will filing for bankruptcy affect my credit score?
Will I be able to get credit after bankruptcy?
Colorado Bankruptcy Exemptions
Q: What are Colorado Bankruptcy Exemptions?
A: Colorado’s bankruptcy exemptions make it possible for Chapter 7 personal bankruptcy filers to keep most of their personal property. A list of Colorado’s bankruptcy exemption amounts and main categories is here. With careful pre-bankruptcy planning, Wink & Wink can help you maximize your exemptions, enabling you to keep your property and wipe out much of your debt through bankruptcy.
Foreclosure and Bankruptcy
Q: I am facing foreclosure, can a bankruptcy filing help?
A: Yes, filing for bankruptcy entitles you to powerful legal protection called the automatic stay. Once you file for bankruptcy, all foreclosure proceedings come to a halt. This stay period (lasting anywhere from three months to five years, depending on your circumstances and the chapter of bankruptcy filed) gives you time to pay back overdue mortgage payments and other arrears on the property.
However, you must file for bankruptcy before the foreclosure sale to take advantage of the automatic stay. Please contact us as soon as possible for a free consultation if you are facing foreclosure. Time is of the essence.
Mortgage and Bankruptcy
Q: I can’t make my mortgage payments. Can bankruptcy help me?
A: Yes. Filing for bankruptcy starts the automatic stay, which halts any foreclosure proceedings against your home for months or even years. This time may take the pressure off, enabling you to make your payments in the future.
If you will be able to make your mortgage payments in the future and simply need time to catch up, a Chapter 13 bankruptcy will give you 3 to 5 years to cure any arrears on your mortgage and keep you in the home.
However, if your financial situation is such that you will not be able to make future mortgage payments, then filing for Chapter 7 bankruptcy can give you three to five months to get your finances in order while your case proceeds. You will likely be able to live in your house without making any mortgage payments for most of this time (you must continue to pay any Homeowner’s Association dues). This will give you time to save money to put toward your next living situation.
Creditor Harassment
Q: Will bankruptcy stop harassing phone calls from my creditors?
A: YES! Once you file for bankruptcy an automatic stay legally protects you from all credit collection activity. This includes foreclosure proceedings, auto repossessions, wage garnishments, IRS collection efforts and even most lawsuits. The automatic stay is powerful legal protection extended to you under the federal bankruptcy laws and one of the main benefits of bankruptcy.
Debt Relief
Q: What debt relief is available in bankruptcy?
A: A discharge in Chapter 7 or Chapter 13 bankruptcy provides powerful debt relief by wiping out your unsecured debt. This includes credit card debt, medical bills, many judgments against you and most taxes that are over three years old. A more detailed list of debts dischargeable in bankruptcy is here (Chapter 7) and here (Chapter 13).
Chapter 13 vs. Chapter 7
Q: Are there any reasons to file Chapter 13 if you qualify for Chapter 7?
A: Yes, some choose to file a repayment plan under Chapter 13, even when they qualify for Chapter 7 when:
- they owe debts not dischargeable in Chapter 7 (such as taxes, child support, fraud judgments) and need time to repay those debts
- they have liens that are larger than the value of the assets securing the debt, which may be wiped out, or stripped, in Chapter 13 bankruptcy
- they are behind on car or house payments, want to keep the property, and will use the repayment period to get current on their loan
- their assets are worth more than the available Chapter 7 bankruptcy exemptions
- they filed a prior Chapter 7 bankruptcy within the last 8 years
Divorce
Q: My divorce requires me to pay child support and also a property division order. Can bankruptcy get rid of this debt?
A: Bankruptcy cannot wipe out any debt related to child support or other domestic support obligations. However, there are some cases where property division orders are dischargeable in a Chapter 13 bankruptcy. This is a legal issue that requires the advice of an attorney. Call us today for a free consultation.
Taxes
Q: I have heard that back taxes are not wiped out in bankruptcy, is that true?
A: No. Many back taxes can be discharged in bankruptcy, and those that cannot be wiped out can be repaid without interest in a Chapter 13 bankruptcy. Additionally, filing for bankruptcy immediately stops collection efforts by state and federal tax authorities, including garnishments and seizures.
In general, unsecured income taxes that were first due more than three years before you filed for bankruptcy, where you filed a timely and non-fraudulent tax return, can be wiped out completely in either Chapter 7 or Chapter 13 bankruptcy.
Consumer Credit Counseling
Q: I have heard a lot about consumer credit counseling being a better option than bankruptcy. Is that true?
A: No. Why? These organizations are basically collection agencies working for or controlled by the credit card companies. Many of them are outright scams where the company pockets your money (they require the first month’s payment go directly to them, not to your debts) and does nothing for you. Additionally, they can only help you reduce the interest payments on your credit card debt (not your medical bills, tax bills or other debts that can be wiped out by bankruptcy). This still leaves you with your original debt amount. You cannot begin a fresh start and rebuild your credit until you get rid of that debt.
Contact us today for a free consultation to discuss the differences between the legal protections of bankruptcy and the unregulated and often misleading world of credit counseling.
Retirement Accounts and Bankruptcy
Q: Will I lose my retirement account if I file for bankruptcy?
A: No. Your 401(k), pension plan, deferred compensation plan, IRA and ROTH IRA is protected from bankruptcy. You will not be required to use any of your retirement funds to pay your debts in a bankruptcy proceeding.
Using 401(k) to pay Debts
Q: Should I use my 401(k) to pay my debts?
A: No! Cashing out your 401(k) is a terrible idea for people with debt problems. Your 401(k) is safe in bankruptcy, but once you pull the money out it becomes fair game for creditors, is used as income in determining whether you qualify for Chapter 7 bankruptcy, and is counted as taxable income by the IRS. Filing bankruptcy is a better option to cashing out your retirement accounts. After bankruptcy you can have a debt-free future WITH the benefit of your retirement savings.
Life Insurance and Bankruptcy
Q: What will happen to my life insurance policy if I file for bankruptcy?
A: You can keep your life insurance policy, subject to the Colorado bankruptcy exemption limit of $50,000 cash value.
How Will Bankruptcy Affect My Credit Score
Q: How will filing for bankruptcy affect my credit score?
A: Your credit report will reflect your bankruptcy filing for up to 10 years, but many credit reporting agencies will remove it after 7 years. However, if your credit was in bad shape prior to filing for bankruptcy (which is the case for most everyone considering bankruptcy), your credit score can actually improve after a bankruptcy discharge. This is because the credit reporting agencies reclassify you with other people who have filed bankruptcy, and also because many lenders will you as less of a risk because you have improved your financial situation by wiping out debt through bankruptcy and you are unable to wipe out future debt in another bankruptcy for four to seven years.
Credit After Bankruptcy
Q: Will I be able to get credit after bankruptcy?
A: Yes. Credit will still be offered to you after your bankruptcy. These offers may be at higher interest rates and for lower limits, but you will be able to get credit. There is also the option of a secured credit card (where you supply the bank with an amount of money and draw down from that), which is usually offered at a lower rate than an unsecured card.
The key to credit after bankruptcy is slow rebuilding; using your new credit cautiously and paying on time.