Recent News–COVID-19 Updates: Retirement Accounts; Stimulus Funds; Online Filings
The coronavirus pandemic has impacted millions of Americans. With the vaccine, the light appears to be at the end of the tunnel. In the meantime, protections afforded by the bankruptcy code are still around. Filing of chapter 7 or 13 will get rid of many of your bills, while allowing you to keep your qualified retirement accounts and usually, all of your assets. Also, the CARES Act provisions permit a debtor to keep the stimulus funds without affecting your ability to file a bankruptcy.
With the pandemic, the courts have allowed the First Meeting of creditors to occur via telephone or Zoom.
Overview of Chapter 7
In Chapter 7 bankruptcy, the most common form of bankruptcy, most of your unsecured debts are wiped out. That includes credit cards, medical bills, deficiency balances on repossessed cars and trucks and most unsecured debt. With secured creditors, a debtor typically has two choices—keep making the payments or surrender the collateral. A tricky part of chapter 7 is dealing with “exemptions.” Property that is exempt is protected from a trustee selling the asset. A common example is the homestead.
In Colorado, a debtor can protect up to $75,000 equity, unless someone in the home is disabled, or the debtor is over 60 years old. In that case, the exemption is $105,000. It’s important to not file Chapter 7 if the home has too much equity, lest the trustee want to sell it. A Chapter 13 is the better route. A debtor can protect the non-exempt equity by paying the creditors what they would have received in chapter 7—and taking five years to do so. That is called “reconciling.” If you have questions how this works, call our office to discuss.
Chapter 7 Bankruptcy Costs in Time and Money
The entire Chapter 7 bankruptcy process takes about four to six months. The filing fee is $338. With COVID-19, the “creditor meeting” is conducted on the telephone or via Zoom. Our fees are competitive with most other bankruptcy attorneys. Payment plans are available.
Do You Qualify?
Assuming you qualify, chapter 7 is available as long as you have not filed another chapter 7 within 8 years. Otherwise, chapter 13 is a better option. In order to qualify for chapter 7, your income can not be above a certain limit set by the bankruptcy code. Above “medium income” families are best served with a chapter 13.
The Power of Bankruptcy — The Automatic Stay
Filing a bankruptcy kicks in something called the “automatic stay.” It immediately stops most creditors from trying to collect what you owe them. It stops foreclosures, garnishments, repossessions. There are very few things the automatic stay does not stop.
Will You Lose Your Property?
Colorado, like other states, has a system of protections from creditors called “exemptions.” Anything that is “exempt” is protected from creditors, including a bankruptcy trustee. Common exemptions are household goods, clothing, jewelry, equity in a home or vehicle, tools of trade. Most people who file bankruptcy have assets “below the exemptions.” If you have an asset that is non-exempt, a trustee in chapter 7 has the right to sell it, take the proceeds from the sale, and distribute the money to your creditors. A chapter 13 protects “non-exempt” assets by allowing the debtor to reconcile in the plan. Its rather complicated, as you can tell. If you have questions how the system works, call our office to discuss.
The Creditor Meeting
Shortly after the bankruptcy is filed, you will receive a notice that a “341 First Meeting of Creditors” is scheduled. The purpose is to give creditors an opportunity to ask questions. Creditors rarely show up for the meeting. Also, the trustee will ask questions to make sure the schedules and statements you filed are accurate. A chapter 7 trustee is looking for “non-exempt assets,” or that is, assets he or she can sell to pay your creditors. Usually, the creditor meeting is the only time you will have to attend a hearing.
In chapter 7, if the trustee determines that you have some nonexempt property, you may be required to either surrender that property or “buy back” the property from the trustee. Most trustees will allow several months to make payments. And most trustees truly do not want the “stuff”– they want the money equivalent.
If you have non-exempt assets, its important to make the right decision as to which chapter to file. Many debtors make the mistake of filing chapter 7, only to be confronted with a trustee willing and able to sell assets.
In that case, a chapter 13 is preferable.
Secured Debts in Bankruptcy
If you have collateral for a loan, in chapter 7, the two main choices are—keep making the payments, or surrender the collateral. In chapter 13, there are more options. If you are behind with payments, a chapter 13 may give you years to get current, such as back payments on a mortgage. Sometimes, you can pay the value of the collateral (called a “cram down,”) instead of paying what is owed. That can save thousands of dollars on, say, a car or truck loan. If there is a judgment lien recorded against your home, depending on how much equity you have, its possible to “void” or eliminate that lien.
The Bankruptcy Discharge
The goal of every bankruptcy is to get an order of discharge. That order means any debt that you could get rid of, is eliminated. Many debts, such as certain taxes, child support and student loans, will “survive” the order of discharge. In chapter 7, a discharge order usually comes in about six months after filing. In chapter 13, a discharge is not entered until all plan payments have been made. That is usually five years.
Call Berken Cloyes for your questions about bankruptcy. Steve and Sean are certified bankruptcy experts in consumer bankruptcy. 303-623-4357