Filing for Bankruptcy Is a Comprehensive Solution for Debt Relief
Our bankruptcy attorneys work with many clients throughout the Denver metro area, but we still feel inspired as each new client discovers a way out of their debt-related challenges. What our clients end up realizing is that filing for bankruptcy can benefit them in more ways than they expected, including the ability to discharge debts that they didn’t think could be eliminated.
Remember that bankruptcy is the solution – not the end of the world. While our society has attached a stigma to bankruptcy, it’s likely that those with negative beliefs toward it have never experienced it – and the challenges leading up to it – for themselves. For many, bankruptcy is the most cost-effective way to get out of debt. It can be the key to a legal fresh start, an opportunity to rebuild your financial future, and the fastest way to rehabilitate your credit.
Keep reading to discover a handful of unexpected ways that bankruptcy provides freedom from debt when you work with the leading legal team at Wink & Wink.
Filing for Bankruptcy Can Discharge Your Legal Bills
As you may know, Chapter 7 bankruptcy will discharge unsecured debt, such as credit cards and medical bills. Legal fees typically operate similarly in bankruptcy. In general, fees for your attorney can be discharged in bankruptcy. If you hired a lawyer in the past for a DUI, a divorce, or other legal proceedings, it is likely that these fees can be discharged after filing for bankruptcy.
However, if you were ordered to pay another party’s attorney’s fees, they are only discharged to the extent that the underlying obligation to the other party is discharged. For example, credit card companies may sue you to obtain a judgment, and they will almost certainly be awarded their attorney’s fees as part of the judgment. Because the credit card debt is generally dischargeable in bankruptcy, the credit card company’s attorney’s fees are also dischargeable.
If you owe a debt that is non-dischargeable in bankruptcy, attorney’s fees incurred to establish and or enforce that obligation may not be discharged in bankruptcy. For example, if you were ordered to pay your ex-spouse’s attorney’s fees incurred to establish and or enforce a child support obligation, the child support obligation is not discharged in bankruptcy, and it is likely that your ex-spouse’s attorney’s fees are also not dischargeable.
Discharging these debts can be exceptionally helpful for many of our clients, especially those whose lives have become more difficult after a DUI or divorce. Both of these events can be extremely stressful and challenging, and, in many cases, can cause clients to go deeper into debt as they struggle with a legal challenge. The ability to discharge these fees offers an opportunity to put these circumstances behind you and look forward to a brighter future.
However, your attorney or another party’s attorney which you were ordered to pay may take action to make their debt more difficult to deal with in bankruptcy. If you’ve ever had an attorney place a lien on your property to collect on legal fees, this debt becomes a secured debt. While the underlying obligation may still be dischargeable in Chapter 7 bankruptcy, the lien could survive bankruptcy. This means the attorney with the lien cannot sue you or garnish your wages or funds in the bank after you file bankruptcy. However, the lien will remain on your property. If you then go to sell your home or refinance the mortgage after bankruptcy, you will have to pay off or settle this lien. It is important to discuss your situation with a bankruptcy attorney to get a clear sense of how to effectively address it.
In certain cases, you may be able to remove the lien from your home in bankruptcy. In particular, you can remove judgment liens on your home if the lien impairs your homestead exemption. Colorado’s homestead exemption allows you to protect up to $250,000 of equity in your home unless you or a dependent in the home is over 59 years old or disabled, which will enable you to protect up to $350,000 of home equity.
If you have less equity than the homestead allows, you can likely remove the judgment lien on your home. For example, if your home is worth $500,000 and you owe $400,000 on the mortgage, you only have $100,000 of equity, and any judgment lien on your home can likely be removed in bankruptcy. If your home is worth $900,000 and you owe $400,000 on the mortgage, you have more equity than the homestead protects and likely cannot remove a judgment lien on your home bankruptcy. If you have this much home equity, bankruptcy is likely not a good option for you unless you have a lot of debt (i.e., more than the unprotected home equity).
When considering removal of a judgment lien in bankruptcy, it is important to know that the lien must be on your home. You cannot remove a lien for impairing an exemption on a rental property because there is no exemption for a rental property in Colorado. Also, removal of a lien that impairs your exemption in bankruptcy can only be done to a judgment lien. You cannot remove a voluntary lien in bankruptcy for impairing your exemption. For example, if you gave the attorney the lien voluntarily as a means to help insure payment, you cannot remove it for impairing your exemption. For voluntary liens, you can only remove them if there is no equity in the home above any senior mortgages (i.e., $300,000 home value with $400,000 owed in mortgages).
Finally, removal of a judgment lien is not automatic in your bankruptcy. It can only be done by filing a separate motion within the bankruptcy. This is a good reason to make sure you have an experienced bankruptcy attorney who is reviewing the liens on your home as a matter of practice. At Wink & Wink, we pull ownership and encumbrance reports for all our bankruptcy clients who own their home. This way, we can advise our clients on any judgment liens on their home, as well as whether they can be removed by a separate motion.
If you cannot remove the attorney’s lien on your home for any reason, you can pay off the lien in Chapter 13 bankruptcy. While you don’t necessarily need to pay unsecured debt (e.g., attorney’s fees without a lien) in Chapter 13, you do have to provide for secured debt. This means you will have to pay for any attorney liens on your home that cannot be removed over a three-to-five-year Chapter 13 payment plan. In cases where the lien cannot be removed, you may be able to settle it for less than is owed on the lien outside of bankruptcy. In such cases, you could engage in debt settlement of the lien either after Chapter 7 bankruptcy (which would remove other debt) or simply pursue debt settlement of all your debt as an alternative to bankruptcy. The experienced attorneys at Wink & Wink encourage you to take a broad view of your debt and pursue whatever options are most cost-effective for you. This helps ensure that you understand all of the types of debt you owe and the plan for removing them, so that you can achieve a cost-effective fresh start on your financial future.
Filing for Bankruptcy Stops Wage Garnishment and Creditors’ Lawsuits
Even if an attorney has a judgment against you and has obtained a court-ordered garnishment of your wages, you can likely stop the wage garnishment by filing for Chapter 7 or Chapter 13 bankruptcy. The key to ongoing protection from the wage garnishment likely depends on whether the attorney’s fees are dischargeable in bankruptcy (see above). The bankruptcy attorneys at Wink & Wink develop strategies on your behalf to negotiate with your creditors.
Our firm has helped many clients who initially felt helpless to fight back against their creditors, but now recognize that they can take action. Although it always makes more sense to retain and protect yourself from creditors before a lawsuit and garnishment take place, bankruptcy typically offers a very compelling value proposition to people enduring most types of wage garnishment.
Filing for Bankruptcy Provides a Solution for Tax Debt
If you have tax debt from unpaid taxes, filing for bankruptcy with premier bankruptcy attorneys can help you discharge these taxes, based on the circumstances surrounding this debt.
The following questions will let you know if you can have certain tax debts discharged through Chapter 7 and 13 bankruptcy. If you can answer yes to all of these questions, you are eligible for discharge.
- Is your tax debt from the tax year for which returns were due at least three years ago? Your debt must be at least three years old to be eligible for bankruptcy discharge. For example, the 2019 tax year was due to be filed by April 15, 2020 unless you filed an extension which would have pushed the due date to October 15, 2020. The taxes from 2019 will pass this test if you file bankruptcy after April 15, 2023 (or October 15, 2023 if you filed an extension for the 2019 year).
- Is the tax debt from a return you filed at least two years ago? You must have filed the returns at least two years prior to filing bankruptcy in order for them to be dischargeable. While the first test relates to when the taxes were due, the second test relates to when you actually filed the returns. It is important to note that you must pass all the tests, so tax debt from a year that hasn’t been due at least three years is not discharged in bankruptcy, even if you filed that return at least two years prior to filing bankruptcy. It is also important to note that if you don’t file a return for 2-3 years or more, the IRS may file a Substitute for Return (SFR) for you. The IRS files a return for you. If this happens, liability for that tax year will never be dischargeable in bankruptcy, even if you file a return for the year and wait at least two years to file bankruptcy.
- Has it been at least 240 days since the IRS assessed your tax liability? Tax returns are generally self-assessing, which means you owe what you say when you file the return. However, the IRS or state can reassess your returns for a myriad of reasons, such as failure to include income or improperly claiming deductions. If a taxing authority has reassessed your return, you will want to make sure you wait at least 241 days from the reassessment to file bankruptcy. Unfortunately, reassessed returns are often not dischargeable in bankruptcy even if filed more than 240 days after the reassessment. This is because the IRS takes the view that many of the reasons for reassessment meant the return was fraudulent. Taxes due from fraudulent returns cannot be discharged in bankruptcy, and taxpayers guilty of tax evasion cannot get a discharge on tax liability in bankruptcy.
Additional options exist for relief from tax debt through debt settlement. To learn more, contact our Denver bankruptcy attorney team to determine the best course of action for your situation. The goal is to find the solution that works best for you, and our team has the tools and strategies to deliver results.
Work with the Denver Legal Team that Makes Filing for Bankruptcy Highly Beneficial
Prior legal fees, tax debt, and aggressive creditors can add a significant amount of anxiety to your life – and this stress comes out differently for all of us. You might be experiencing anger as a result of feeling wronged after a divorce, a DUI, or a tax bill. You may even feel like the deck is stacked against you in the current economy.
Although these feelings are normal when we fall on hard times, they shouldn’t prevent you from taking action. Debt settlement solutions now exist that can help you find freedom from the difficulties and pain of the past.