Bankruptcy is a term with a lot of negative connotations. However, the truth is that bankruptcy is a process put in place by the federal government to assist individuals (and businesses) in obtaining a fresh start when they find themselves under the stress of so much debt that they are unable to dig themselves out. Depending on your situation, bankruptcy may be an effective tool to get out of debt and to start building wealth again to protect your future.
A Chapter 7 bankruptcy is referred to as a liquidation bankruptcy because this type of bankruptcy involves the liquidation, or sale of your assets to pay as much of your creditor debt as possible. Any remaining debt is then “discharged” or forgiven through the bankruptcy process. Although a Chapter 7 bankruptcy is called a liquidation bankruptcy, this does not mean that you must sell everything you own to obtain a discharge. Federal law provides that certain assets are considered “exempt” from sale. However, each state has different exemptions and it varies by state whether you can also use the federal exemptions. Colorado does not allow an individual to use any federal exemptions, but instead you must use only Colorado specific exemptions. For example, Colorado allows you to retain a car up to a value of $7,500 and household goods up to $3,000 in value. However, Colorado law does not provide any exemptions for cash on hand or firearms. It is the job of your bankruptcy attorney to review your assets and qualify as many assets as possible under applicable exemptions to protect these assets from seizure and sale by the trustee.
Whether bankruptcy is a valid option for you also depends on the type of debt you have. Not all debts can be discharged through a bankruptcy. For example, child support or alimony arrearages are not dischargeable in bankruptcy. Additionally, some debts have very specific rules regarding when they can be discharged through bankruptcy such as student loans and accrued tax liability. These debts require an analysis by your bankruptcy attorney to determine what portions, if any, of these debts may be discharged.
Additionally, not everyone is eligible to file for Chapter 7 bankruptcy. One of the largest determining factors is your income. The federal government sets income limits based on your household size. However, if your income is above the limit for filing a Chapter 7, this does not necessarily preclude you from eligibility under Chapter 7; this just means your attorney will have to do an in-depth analysis of your income and expenses to run what is a called a means test. If you qualify under the means test, you can still file for Chapter 7 bankruptcy. If you do not qualify under the means test, then a Chapter 13 bankruptcy may be an alternative option for you.
Filing for bankruptcy is a complicated process, and there are serious consequences for failing to disclose assets to the court and/or trustee assigned to your case. Contact Jorgensen, Brownell & Pepin today to have an experienced bankruptcy attorney assist in analyzing your financial situation to see if bankruptcy is a right fit for your situation, and if so to assist with guiding you through this complex process. You deserve a fresh start; Jorgensen, Brownell & Pepin can help you achieve it.