Bankruptcy FAQs

Our firm has been working with families throughout Colorado for years to help bring financial relief through bankruptcy. We often hear a lot of the same questions, worries, and concerns from the people that walk through our doors. Here are some of the most frequently asked questions, and some quick answers for each.

Is bankruptcy right for me?

Until you meet with a bankruptcy attorney from Cohen & Cohen, P.C., we cannot answer that question. But chances are that if you are looking at bankruptcy as an option you have already exhausted all other options.

Usually, an individual comes to the conclusion that bankruptcy might be an option months (sometimes years) after it truly became a good option for them. Probably in only 1 out of 10 consultations will we advise a client not to file for bankruptcy due to other options, and trust us, we believe that a client should pursue other options if they make sense. Bottom line, if you think you need bankruptcy protection, you are probably right.

What is the “fresh start”?

As discussed already, bankruptcy is designed to implement the policy of providing an overburdened and honest Debtor a “fresh start.” The fresh start is realized by giving the debtor exemptions for property and providing a discharge for certain pre-bankruptcy debts or implementation of a Chapter 13 re-organization plan. Note that dishonest and improper use of the bankruptcy code is strictly prohibited and punishments can include denial of your discharge, jail time, massive fines, or all three.

Types of Bankruptcy

There are multiple types of bankruptcy. The most common types for consumers (and businesses) are Chapter 7 and Chapter 13. The types of bankruptcy stem from the chapter of the United States Code you are filing under. For example, a Chapter 7 bankruptcy is filed under 11. U.S.C. § 700 et. al. Business and very wealthy individuals will oftentimes file under Chapter 11.

Chapter 11s are very complicated and extremely time-consuming. The average consumer and small business are typically better served with a Chapter 7 or 13. It is important to note that although the Chapters are different, all of the types of bankruptcy, or chapters, interrelate and draw off one another.

What is Chapter 7 bankruptcy?

The short answer is that it is a liquidation rather than a reorganization. This form of relief is oftentimes sought by the Debtor for many reasons, but primarily due to its speed and oftentimes complete wipeout of unsecured debts. Unlike a Chapter 13 which typically takes anywhere from 3 to 5 years to receive a discharge, a Chapter 7 is usually completed within 3-6 months from filing.

A Chapter 7 bankruptcy is oftentimes referred to as a liquidation because any non-exempt property can be taken and sold (e.g., liquidated) by the Trustee to pay off your debts. When this happens, typically your creditors receive pennies on the dollar and the remaining balance is discharged (e.g., the debt is wiped out).

What is a Chapter 13 bankruptcy?

The short answer is that Chapter 13 is a reorganization rather than a liquidation. This form of relief is sought for various reasons, such as not passing the means test, greater flexibility, and protection of assets. Under this type of bankruptcy the debtor is able to reorganize their debt and pay back a percentage of what is owed over a period of 3 to 5 years. The actual payment amount is based on numbers and depends on a series of factors including but not limited to income and expenses.

Pre-bankruptcy planning

“Pigs get fat, and hogs get slaughtered.” This quote has been cited in several cases with regard to pre-bankruptcy planning. You can protect your assets prior to bankruptcy filing without being accused of fraud, if you do it appropriately. This is as much art as it is law. If you have assets to protect in a bankruptcy, don’t do it yourself. Call a lawyer. Trust us on this one.

Do I have to qualify for bankruptcy?

Sort of. You do have to qualify for a Chapter 7 bankruptcy by passing the Means Test. This is based on your last 6 months of income. It is important to note that they did not “take away” bankruptcy with the new law. This is a myth that we hear all too often. Even if you don’t qualify for a Chapter 7, you can almost always find relief under Chapter 13 or even Chapter 11.

What is a bankruptcy trustee?

This is a person who works for the U.S. Department of Justice who is responsible for administering your case. Essentially it is the Trustee’s job to make sure you are honest, forthright, and to liquidate non-exempt assets. Because most creditors will not contest your bankruptcy or otherwise care, in the vast majority of cases the Trustee will be the only official you will meet with. He or she is oftentimes responsible for the successful resolution of your case.

Are certain debts non-dischargeable?

Absolutely. The right to a fresh start is not without limitations. You cannot discharge fraudulent debts, some taxes, or student loans (except you might be eligible for a hardship discharge), amongst others. The list of what is non-dischargeable is as much black letter law as it is good lawyering. However, if you have been honest and forthright, chances are that you will not have any problems.

Should I file Chapter 11?

Maybe. Though I doubt it. Chapter 11 bankruptcy is very complicated and very expensive. It is specialized and will probably take years to complete. Typically large corporations, such as United Airlines, or very wealthy individuals are the best candidates for Chapter 11. Chances are if you are a small business owner you have personally guaranteed your debts and a “business bankruptcy” (e.g. primarily business debts) under Chapter 7 would be better for you.

However, this issue is tricky, and many factors will go into deciding which course of action is best for you. You should speak to an attorney if you have a business bankruptcy issue.

Will I lose all of my property?

One common myth about bankruptcy is that you will lose everything you own. In most cases, the Debtor is able to retain most if not all of their property while receiving a full discharge.

What property is exempt from my creditors?

Bankruptcy is designed to provide the debtor with an adequate level of property for a return to a normal life. The list of exempt property is too extensive to review here. However, Colorado has chosen to opt-out of the federal exemptions thereby leaving it to the Colorado Legislature to decide what is exempt from execution (e.g., what can’t be taken by creditors).

People are sometimes surprised to find out what is exempt and what is not exempt. Oftentimes, even if you have a non-exempt asset we are able to assist you in pre-bankruptcy planning to help you keep that asset. The trick is knowing how to convert a non-exempt asset into an exempt asset and not run afoul of the good faith provisions of the bankruptcy code.

Do you represent primarily debtors?

In the past that is generally what we did. However as our practice has grown we tend to represent both sides of the coin. But we cannot stress enough how valuable representing both sides is to our consumer and business clients as we have become that much more familiar with the creditor side of the bankruptcy laws.

Do you negotiate debts?

Absolutely. Sometimes bankruptcy isn’t the best option. However, unless there are special circumstances it is oftentimes in our clients best financial interest to simply file a bankruptcy.

Can I file bankruptcy myself?

At Cohen and Cohen, we encounter a lot of interest from potential clients in filing their own Colorado bankruptcy “pro se.” You can do it. In fact, there are some instances where there are not any problems. But we cannot stress enough why filing on your own is a bad idea for several reasons:

  • Making a mistake in your bankruptcy filing, as opposed to filing bankruptcy correctly, can become very expensive to fix and may result in losing assets, such as your tax refund. We have seen people lose their homes, stocks, inheritance, and any number of items that cost much more than an attorney.
  • Using a local Colorado bankruptcy attorney allows you to receive specific Colorado bankruptcy advice, which is right for your individual situation. This protects you from generic bankruptcy forms, complicated “how-to” instruction manuals, and unreliable “how to file bankruptcy” advice from internet forums.
  • Filing bankruptcy is not easy; there are multiple forms and legal requirements and you should have it done by a professional. Saving the time, hassle, and risk of losing assets makes filing with a bankruptcy lawyer worth the investment.
  • It is very important, especially for people expecting tax refunds or personal injury settlements, that the money they received is spent correctly before filing or properly protected. Getting the assistance of an attorney, to make sure this is done right, is the conservative choice to make. Losing your tax refund or injury settlement can be devastating.
  • Finally, if you’re anxious or concerned for any reason, it’s much easier to have your lawyer available with help and answers than to be stranded on your own in the middle of a confusing situation.

You will have a far easier time with less risk if you file bankruptcy using an experienced Colorado bankruptcy attorney. Have an attorney available to advise you from the start and avoid common pitfalls and unnecessary risks.

How are bankruptcy and credit ratings related?

In a lot of instances, filing bankruptcy actually helps your credit score. Bankruptcy truly is a fresh start. If you do it right, within a few years you can have A credit again. We work with trusted business who know more about improving your credit score that we do. They will help you rebuild your credit to get your rating up as quickly as possible.

What are the effects of bankruptcy on credit?

Studies have shown that 90% of people who file for bankruptcy are offered a credit card within one year of filing. Our clients often tell us that they get more junk mail for credit in the 6 months after filing for bankruptcy than they did in the past 6 years. Indeed, creditors used to leave fliers at the bankruptcy court and even bring attorneys doughnuts and cookies to try to drum up business.

Creditors want to give the recently bankrupt individual(s) credit because the debtor can’t file again for a while (i.e., they know they will get paid) and they can charge higher interest rate. Most people do get credit again, if for any reason to purchase a car or re-build their credit rating.

How much do you charge for bankruptcy?

To be honest, it depends. Every case is different and we aren’t going to advertise a one-price-fits-all bankruptcy. We charge less for uncomplicated cases and we charge more for complicated cases. Frankly speaking, the question you should be asking your bankruptcy attorney is not what they charge, but what is included in the charge. Generally, a bankruptcy will be a flat fee.

Some attorneys then seek to minimize their legal responsibility to the client by that flat fee. It would be beyond the scope of this FAQ to really delve into what we include in our agreements (though I can assure you it is more than most), but a good rule of thumb is the less you pay the less you get. Don’t go shopping for a bargain on a parachute.

Why should I hire Cohen & Cohen, P.C., for my bankruptcy?

This question comes up from time to time in our initial consultations. We tend to be a bit uncomfortable answering it because telling people how wonderful we are just doesn’t feel quite right… But with that being said, it is a fair question.

My first response is to check out our testimonials. They are real. My second response is to tell the client that I wish it was ethical for me to take and show them a picture of every client we take over from another bankruptcy firm and have to fix their case. Although most bankruptcy attorneys are competent, buyers beware.

My third response is to then tout our customer service. We are courteous to everyone, our clients, the court, opposing counsel, each other, the mailman, our neighbors, and so on. If you call and want to talk to your attorney, you can do so. Trust me when I say this, you would think that is commonplace but it’s not.

Finally, I will then cater my answer to that particular client’s needs such as, “yes, I will be the attorney who works on your file and goes to court with you” (as opposed to passing you off to multiple attorneys or paralegals throughout the process). Or then I will discuss our experience in addition to our ability and desire to handle the simple and complicated cases (it still amazes us how many attorneys don’t want to do the tough stuff and just pass along the client when something bad happens).

I might even talk about our experience in other areas of law which will almost always impact a bankruptcy. But one thing I will always get across is that we really do want to help our clients and provide them peace of mind.

What are post-bankruptcy lending practices?

Consumer credit and consumer bankruptcy filings have grown rapidly over the last two decades, and several researchers have attempted to understand the relationship between these two intertwined features of the modern American economy.

Teasing out causation is almost impossible, as consumer advocates lay blame on the industry and the industry responds by citing the same data to show consumer misbehavior. Using a novel vantage point, this analysis examines what the credit industry’s behavior toward recently bankrupt families reveals about its internal profit models and the likely causes of consumer bankruptcy.

The empirical evidence on post-bankruptcy credit solicitation belies the industry’s characterizations of bankrupt families as opportunistic or strategic actors. Original data from longitudinal interviews with consumer debtors show that many lenders target recent bankrupts, sending these families repeated offers for unsecured and secured loans.

The modern credit industry sees bankrupt families as lucrative targets for high-yield lending, a reality that has important implications for developing optimal consumer credit policy and bankruptcy law.

To read more on post-bankruptcy lending practices:

Bankrupt Profits: The Credit Industry’s Business Model for Postbankruptcy Lending

Bankruptcy and the Bible. Do Christians file for bankruptcy?

Yes. At Cohen & Cohen, P.C., not only have we represented devout believers but also ministers and other spiritual leaders. Unfortunately many people believe it is somehow not Christian to file bankruptcy. Although we are not ones to dispute another’s strongly held religious convictions we see too many people, Christian people, get hurt, abused, and taken advantage of by the system modern bankruptcy law is designed to protect.

Frankly speaking, our religious clients tend to wait the longest to meet with us and consequently are so weighted down by the debt and the system that the rest of their lives tend to begin falling apart. Remember, everything happens for a reason. Remember, “Blessed is the man whom God corrects; so do not despise the discipline of the Almighty. For he wounds, but he also binds up; he injures, but his hands also heal.” – Job 5:17-18

For additional information, please read the following article titled “Bankruptcy and the Bible.”(note – this was written prior to the Bankruptcy Law Changes of 2005, some of the references to the Bankruptcy Code are outdated, but the biblical references still stand). What does the Bible say about Bankruptcy?

To schedule your initial consultation at our convenient central Denver location call 303-933-4529.

* Note, we are not your lawyer until you sign a fee agreement with us. Do not take legal actions based on this content! Before continuing, please review the following disclaimer.

About the Author: Robertson Cohen

Rob Cohen is a Managing Partner of Cohen & Cohen, P.C., serving clients in Colorado and Wyoming. He’s a Chapter 7 Bankruptcy Panel Trustee, certified mediator, and has administered over 8,000 Chapter 7 bankruptcy estates.

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