Real Estate Market Drives More Chapter 13 Filings.

The good news, that house you bought in 2008 has almost doubled in price. The bad news, you’re still struggling each month and no progress is being made on the credit card balances.

Today’s chapter 13 filer in Chapter 13 is increasingly a “middle class” person or family. Why? As of July 1 the homestead exemption in Colorado went from $60,000 to $75,000. (for persons under 60, at 60 years or older you get $105k, in fact if you’re married and co-own a home only one of you must be 60 to qualify for the $105,000 exemption).  But, the price of housing has outstripped even the greater exemption. And, to make matters more interesting, persons who bought a while ago cannot afford to rent something similar, so selling is often not an option.

So more good news. The house you own is making you wealthy long term. But more bad news, you still cannot make progress on your credit cards and unsecured loans. Chapter 13 is the answer, and while more complex than Chapter 7 and more expensive and time consuming, a well planned Chapter 13 can put you in a much better place.

In a Chapter 13 you generally must pay over your disposable income to the Chapter 13 trustee for 36 to 60 months. You may generally pay directly or use a wage attachment. This means you pay what you can on credit cards and loans and at the end of your Plan , the rest of your debt goes away. This can be exactly what the lawyer ordered for a family with a lot of equity in a home. You can also cure mortgage arrears in a 13, over time with reasonable payments that are decided by your buget and not by a computer at your mortgage company.

Basically, because home prices have gone crazy in Colorado (again) it is important that your bankruptcy lawyer know how to deal with the option of filing for Chapter 13 bankruptcy protection, and not be one of these $499 lawyers who only file chapter 7 cases.  Some of the advantages include the following:

1. Keep your home, even where you have too much equity to file a chapter 7;

2. Cure mortgage arrears over time with reasonable payments;

3. Discharge joint debt with an ex-spouse that was assigned to you in a divorce;

4. Continue to make retirement plan contributions;

5. Possibly cram -down a vehicle loan, or pay the amount the car is worth rather than what you owe;

6. Discharge a second mortgage in certain circumstances;

7. Pay taxes over time inside the plan;

8. Put all of your debt into one monthly payment which is driven by your budget and not by your most aggressive creditor;

9. Maintain the ability to modify your plan (aka lower your payment) when circumstances change.

In summary and to distill the thing, I would advise a Chapter 13 for a working person or family in Colorado with a stable job or income, that nonetheless has significant consumer debt and or has more than $75,000 of equity in their residence. It can, while shedding the debt, protect your home equity and allow you to continue building retirement savings. It forces all of your creditors into one place and deals with them over time. While complex legally, it’s a valuable tool for many of my Colorado clients , and increasingly so in this housing market.

It’s important that your bankruptcy lawyer know when a Chapter 13 filing may make sense. And it’s important that your lawyer be experienced in guiding you through the system to arrive a fair plan and payment. If you have questions about whether chapter 13 bankruptcy may be a solution for you , please call (303)670-4242 for a confidential consultation at our I-70 and Denver West location.








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Marijuana Decision in Bankruptcy Court May Affect Colorado

The 9th circuit federal Court of Appeals decided that a lawyer who steals $25,000 from a marijuana dispensary cannot discharge the obligation to repay the funds in bankruptcy. Because the marijuana business is becoming a big part of the Colorado economy, I thought I would use this case to explain a few aspects of the bankruptcy Code.

In this matter the Bankruptcy Court found that a particular lawyer, a Michael K. Beyries can discharge (that is not have to repay) $25,000 he had stolen from a marijuana dispensary called Northbay Wellness Group, Inc (Northbay). Apparently the $5,000 monthly cash retainer paid to Mr. Beyries was not enough to keep him in legal pads, and so he made off with $25,000 of funds contained in a legal defense fund. A California state court found him liable for the $25,000 he stole, $350,000 of damages for breach of contract and $5,000 of punitive damages. (He was also disbarred).

Because marijuana sales are still illegal federally, the Bankruptcy Code can prove unhelpful to people involved in that business in Colorado. In this case the Court had ruled that because Northbay was selling marijuana illegally it was barred from recovering the stolen money under the doctrine of “unclean hands.” Meaning that because you were also doing wrong, you cannot recover from someone else who does wrong to you. The District Court heard an appeal and agreed with the Bankruptcy Court. Appeal was taken to the 9th Circuit Court of Appeals in San Francisco, which reversed the decision of the lower court meaning despite his bankruptcy this lawyer must repay the money.

The Court ultimately decided that this attorney’s wrongdoing out weighed the wrongdoing of the marijuana dispensary to the degree that he should have to repay the funds. Additionally, the Court noted that allowing an attorney to file bankruptcy and get away with not repaying funds stolen from a client was against public policy. In other words, we cannot have such a thing and still have the public put their trust and confidence in lawyers.

In this particular case the non dischargeabiliy section of the Bankruptcy Code relied upon was 11 USC 523(a)(4); which states that you cannot avoid paying debts incurred by “for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny.” Stated differently, lawyers cannot steal from their clients and then discharge the debt in bankruptcy.

People should also be aware that you do not have to be a fiduciary to have a debt ruled non dischargeable in bankruptcy. 11 USC 523(a)(2) makes any debt incurred by use of false pretenses, false representations or actual fraud (misrepresentation of a material fact) non-dischargeable. But the point for people involved in the marijuana business is that marijuana is still illegal federally and this can cause problems in the federal Bankruptcy Court.

The Bankruptcy Courts are federal courts, and appeals are taken to the federal district courts in Colorado. If you have a marijuana related business dispute that ends with in a bankruptcy of one of the participants, you will want to consult a qualified bankruptcy lawyer to sort the mess out. This true if you’re looking to get a fresh start by using the bankruptcy Code to discharge debts which you cannot pay, and also if someone or some business that owes you money has filed for Bankruptcy protection. The judges in Colorado are increasingly struggling with complex marijuana related fact patterns, and some bankruptcy lawyers are having problems having fees approved for helping persons involved in the marijuana business. Aside from the illegal status of marijuana federally the fact that banks will not accept cash also complicates the marijuana business in Colorado. Where everything is done in cash, you often have problems of proof.

In summary because of complexities caused by the illegal status of marijuana federally, not to mention problems of proof caused by the fact that the marijuana business is a cash business if you have any bankruptcy related issues in Colorado, you ought to seek counsel from a qualified lawyer as soon as possible.

Here for example, while Mr. Beyries must repay the $25,000 a chapter 13 filing may have saved him from the civil breach of contract damages and or the punitive damages. The point is bankruptcy is NOT a simple or straightforward area of the law, despite popular opinion to the contrary.



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Bankruptcy Discharge Explained, Permanent But Conditional

What is a Discharge In Bankruptcy ?

Obtaining a bankruptcy discharge is the goal of most bankruptcy case filings. There are reasons to file a bankruptcy case where the Debtor is not eligible for discharge, such as to buy time until the debtor IS eligible for a bankruptcy discharge, but generally getting a discharge is the goal of a Chapter 7 or Chapter 13 consumer bankruptcy filing.

The US Court in Denver and the Bankruptcy Code (11 USC 101- definitions) define bankruptcy discharge as follows: A bankruptcy discharge releases the Debtor from personal liability for certain kinds of debts. In other words a debtor is no longer required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any action on discharged debts including legal action and communication with the debtor such as telephone calls, letters and personal contacts.

When a bankruptcy case concludes, and the debtor has fulfilled all of the obligations he or she is required to perform they will get a Notice of Chapter 7 discharge or Notice of Chapter 13 discharge in the mail. I try to notify my clients of this event and explain what it is when it happens directly by email or telephone call. The “discharge” is a good thing, it is important to distinguish that event from a “dismissal” of a bankruptcy case. This is the goal of what we have been doing.

Another point I would like to make about bankruptcy discharges is that while permanent, they are conditional on paying the Chapter 7 trustee any amounts due. In other words, if by agreement or litigation you are required to pay money to the bankruptcy trustee, your discharge will revoked if you do not pay what is owed.

It is rare for my bankruptcy clients to owe money to the trustee, and if they do, they are made aware of the why and when of paying. I try very hard to arrange things so that no money is due in a Chapter 7 case, as this gives the Debtor a true fresh start. For the same reason I don’t encourage Debtors to borrow the legal or filing fees, though it is legal to do this. It’s a great feeling to be truly “free” of your debt and while this is not always possible I try to make it happen for my clients. The point is that even if you have a discharge, you may still have things to do in your case.adphoto22seriousbw

The definitions section of the Bankruptcy Code can be found at 11 U.S.C. 101 et seq. You may call me directly if any aspect of bankruptcy is confusing to you. Often legalese, understanding legal terminology goes a long way toward your being comfortable with your bankruptcy case. Feel free to ask any questions of me in this regard. When you get a qualified bankruptcy lawyer in Colorado, these things are explained. I can be reached at (303) 501- 4028.

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