Four Signs That A Bankruptcy May Be Necessary

1. You Are Not Making Progress Long Term on Your Balances.
If you are making minimum payments only on your consumer debt and can not seem to make progress on the balances, a bankruptcy might make sense. This depends on the circumstances including the level of debt and the reasons you are not making progress. For some people making minimum payments on a $10,000 debt for a while may make sense. For others, those with a fixed income or those facing health challenges, that same $10,000 balance may be an unacceptable burden where bankruptcy makes all the sense in the world.

2. You Are Not Enjoying Life Long Term.
Having significant debt is very stressful. If your debt is such that over a long period of time, you face stress and unhappiness such that it effects your health, you might consider a bankruptcy. Many of my clients endured many years of stress before they made the decision to file. I have seen this stress ruin marriages and cause serious disease. I can honestly say I have never had a client who expected to file bankruptcy or who planned a bankruptcy. Conversely, I usually hear from people who are very relieved to have a fresh start, and wish they had considered the idea years earlier.

3. You Are Considering Using Home Equity or Retirement Funds to Pay Credit Cards.
This is almost always a bad idea, depending on the numbers involved and the age of the person. A thirty year old with 100s of thousands of retirement funds who can eliminate a $10,000 debt , where that is the person’s only debt, may want to do that. What I typically see however, is a much older person with a family using precious retirement funds or home equity to pay a debt off where that debt makes little difference to the overall picture. A person should definitely not use retirement funds or home equity to “buy time.”
4. Your Family Needs You to File In Order to Secure a Better Quality of Life.
People with children, elderly relatives or sick relatives often come to the conclusion that bankruptcy is the only way they will be able to continue to help a dependent.
The Overall Message From the Gauss Law Firm:
Bankruptcy is a very personal and contextual decision. It depends on many things. This is yet another reason I charge a fair rate for the expertise involved in filing a case. Most clients of mine get a free initial consultation where we take a serious and honest look at the necessity of filing. I do this for free because I don’t want to be one of those unfortunate lawyers who pressure their clients into a filing in order to earn fees. I have plenty of clients after 20 years, and I don’t need to “sell” you on something that isn’t right for you. If you would like a consultation please call 303-501-4028.



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Chapter 11 Bankruptcy Basics

Chapter 11 Business Bankruptcy Case Basics

Upon filing a petition for a business in Chapter 11 bankruptcy the debtor assumes a new role as “debtor in possession” 11 USC 1101. This term means a debtor who keeps control and possession of assets while continuing to operate a business and attempting a reorganization (read as shedding debt or avoiding or adjusting other obligations the business is liable for).

The filing of a Chapter 11 case makes the debtor in possession a fiduciary. This means they are essentially the trustee for their own bankruptcy case, which in turn means the principals must run the business in a legitimate way and perform various duties such as accounting for assets, objection to claims, investigating preferences, filing operating reports and filing tax returns. 11 USC 1106, 1107.

Like in consumer cases the filing of a Chapter 11 for a business imposes an automatic stay against creditors. They are prevented from continuing lawsuits, engaging in other collection activities, evicting the debtor on a lease, or basically enforcing any pre-filing obligation that the business may have had. 11 USC 362. There are exceptions and motions may be made for relief from the automatic stay. A common objection is one by a secured creditor who seeks to enforce or foreclose on the secured property by arguing that the debtor has no equity in the property and that the property is not necessary for an effective reorganization. 11 USC 362(d). It is sometimes necessary for a debtor to “adequately” protect such creditors by making cash payments or giving new liens.

A debtor may use, sell, or lease (lend) cash collateral during the case only with the consent of all creditors who are secured thereby, or with prior approval of the court. Other types of property, that is property that is not secured, may generally be used , sold or pledged only the ordinary course of business.


Unless the Debtor elects to be treated as a small business debtor in the case the Debtor has an exclusive right after the filing (called the date of the “order for relief”) to propose a Chapter 11 plan of reorganization. A Chapter 11 plan must classify all claims and interests and a plan may be accepted or rejected only by class. To be accepted by a class of interests, the holders of at least two – thirds interests voting on the plan must vote to accept the plan. Classes who get nothing are automatically treated as rejecting, and classes that are paid in full are automatically treated as accepting the Plan.

If the holders or one or more classes of impaired claims do not vote to accept the plan then Debtor’s counsel must get the Court to confirm the plan over the objects of the disgruntled creditors. This is called a “cram – down” of a Chapter 11 plan. This term means something quite different in a Chapter 13 case where a cram down means reducing the amount to be paid to a car lender, for example, to the value of the car as opposed to the amount owed.

A formal disclosure statement must also be provided in a Chapter 11 plan of reorganization, and the court must approve the disclosure statement. A disclosure statement must contain sufficient information about the proposed plan, and about the history and financial condition of the debtor, to enable a creditor or party in interest to make an informed decision on the acceptance or rejection of the plan.

A person does not have to be engaged in a business to qualify for Chapter 11 relief, a consumer can file a chapter 11 plan of reorganization. In reality however the complexity and cost of a Chapter 11 case means that only persons with substantial investments or assets may use Chapter 11. A person must have some goal, some asset worth reorganizing or rehabilitating before

a Chapter 11 begins to make sense. Sometimes, individual debtors are forced into Chapter 11 because the debt level is too high to qualify for a Chapter 13.

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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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