If you are faced with mounting debts and dwindling income, a Chapter 7 bankruptcy filing may be your best option. Bankruptcy is nothing to be ashamed about. The whole point is to give debtors a fresh start by discharging debts they will never be able to repay.
Do You Qualify for Chapter 7?
Congress extensively rewrote the bankruptcy laws in 2005. One consequence is that debtors must pass a “means test” to qualify for Chapter 7 bankruptcy. The means test looks at your average income for the six months prior to your bankruptcy filing. Your average income must be less than the median income for a household of your size in Colorado.
A qualified Denver Chapter 7 attorney can advise you on the best way to handle the means test. Even if your average monthly income is currently higher than the state median—it is about $65,000 for a two-person household in Denver—you may be able to wait a few months if you know your income will decline, for example, because you were recently laid off. If you still cannot pass the means test, a bankruptcy attorney can advise you of your other options, including filing for Chapter 13 bankruptcy.
How Much Can I Keep in a Chapter 7 Bankruptcy?
Bankruptcy is not designed to leave you with nothing. To the contrary, the law exempts a good deal of personal property from the bankruptcy process. Any asset that is exempt cannot be seized by your creditors or the bankruptcy court to pay off your debts.
Congress established a number of default exemptions in the bankruptcy code itself. But individual states may require their residents to use a different set of exemptions. Colorado is one of those states, which means that if you are a Denver resident and file for Chapter 7 bankruptcy, you must use the Colorado exemptions.
For many Denver residents, the most important exemption is the homestead exemption. This exemption allows you to keep or some or all of the equity you have in your primary residence. In Colorado, the homestead exemption is $75,000; however, if the homeowner or their spouse is disabled or at least 60 years old, the homestead exemption is $105,000.
Colorado also exempts up to $7,500 of equity (or $12,500 for the elderly and disabled) in one or more motor vehicles. Other useful Colorado bankruptcy exemptions include:
- 100 percent of life insurance proceeds if the policy prohibits assigning the benefits to a beneficiary’s creditors;
- 100 percent of any court-ordered child support payments;
- 100 percent of public assistance benefits, including unemployment and workers’ compensation;
- 75 percent of your “disposable” weekly wages or 30 times the federal minimum wage—currently $290 per week—whichever is greater;
- $3,000 in furniture and other household goods;
- $2,500 in jewelry; and
- $2,000 in clothing.
Why Do I Need a Bankruptcy Attorney?
This is only a brief overview of Chapter 7 bankruptcy. The law frequently changes in this area, and there are many details to consider. Filing for bankruptcy without an attorney is never advisable. An experienced Denver Chapter 7 attorney can provide you with specific advice on your situation.