No.  You do not need to be “flat broke” in order to obtain bankruptcy relief.   With limited exception, the only requirement to file bankruptcy is that you are unable to pay your bills as they come due.  For example, if you are borrowing money on credit cards to pay your monthly living expenses or other credit card debt, you are a good candidate to file bankruptcy and should seek the advice of a bankruptcy attorney as soon as possible.

Most bankruptcy attorneys provide free initial consultations during which he or she will assess your financial circumstances.  Once the attorney is familiar with your financial circumstances, the attorney will advise you how to protect your assets and will walk you through any other issues that may prevent or delay your discharge.

A good attorney will not push you into filing bankruptcy if it would be in your best interest to wait or not to file at all.  A good attorney will also be able to give you other options for resolving your financial problems.

In short, do not wait until you are in desperate straits before seeking financial advice.  Remember, “Knowledge is Power.”

Scams to Avoid When Rebuilding Your Credit

Often, clients who have filed bankruptcy are in such a hurry to rebuild their credit, they may be tempted to try anything that promises to get them back on track.   Please be very careful!

There are many scams out there. Because a bankruptcy is a public record, these scam artists know exactly who to target; they will promise you all sorts of magical ways to repair your credit after your bankruptcy.

Don’t be fooled!

The scam: Many con artists will try to convince you that there is no way you will ever be able to get credit again. This is simply not true. While you may not be able to obtain the best available interest rate  you can often obtain credit, especially if you look into secured credit cards.

Once these scammers have sufficiently scared you, they will offer to help you “repair your credit”. Please know that there is no such thing as credit repair!  Your credit history is just that, your history.  It contains the truth about what has gone on in your credit situation.  If there is a mistake on your credit report, then you can absolutely get it fixed.  Otherwise, there is no “repairing” accurate, negative history.

Many “credit repair” scams promise to give you a new credit identity.  This is fraud! Many of these companies ask for money up front without advising you of your legal rights. Congress has passed a special law on this issue called the Credit Repair Organization Act. This Act prohibit companies from making false claims about credit repair and makes it illegal for these companies to charge you before they have performed their services. If you have been a victim of this fraud, you may file a suit in federal court. You should also contact the FTC and file a complaint.

On October 15, 2013, eight years will have elapsed since Congress changed the bankruptcy laws in 2005.  Unfortunately, the press had frightened the public at that time into believing that bankruptcy was no longer available which caused a spike in bankruptcy filings in the fall of 2005.   Many of those filers, as a consequence of the economic downturn, are now in over their heads in debt and want to know when they will be able to file another bankruptcy.

The answer all depends upon when they last filed bankruptcy.  The Bankruptcy Code was amended in 2005 to change the time period between Chapter 7 filings from seven years to eight years, and to change the time between a Chapter 13 and a Chapter 7 filing to six years.

If you filed Chapter 7 in the past, count forward 8 years from the date you filed Chapter 7—you will be eligible for another Chapter 7 discharge after that date.  If you filed Chapter 13 six years ago and received a discharge, count forward six years from the day you filed Chapter 13—you will be eligible for a discharge after that date.

Remember, you begin counting the time period from the date you filed your previous case – not the date of discharge.

A Chapter 13 bankruptcy is useful for those who earn more than the state median income, have assets that they want to keep but would have to give up in Chapter 7, or want to get back a repossessed vehicle. A Chapter 13 can save your home from foreclosure, can discharge debts that would not otherwise be dischargeable in Chapter 7, and can reinstate your driver’s license. There are other reasons to file Chapter 13, but those are the most common.


In a Chapter 13 you will make regular payments to creditors over a period of between three and five years. The size of your payments will depend upon the facts of your case. You need not repay all of your debt. If you cannot afford to repay all creditors completely, you will propose a plan to pay amounts due on debts that are secured by the collateral (such as your home or vehicles) that you want to keep and other debts that would not be discharged in a Chapter 7, such as taxes, student loans, back child support, and traffic infraction fines, as well as other non dischargeable debts. No matter how little you pay to your unsecured creditors, at the end of your plan your debts will be discharged.


Chapter 13 can do many things that Chapter 7 cannot do. But to qualify for Chapter 13 you must have sufficient income to pay all your necessary monthly living expenses and have some money left over to make Chapter 13 payments.

Chapter 7 Bankruptcy is generally the simplest and quickest form of bankruptcy. It is, therefore, the most frequently selected.

Chapter 7 is designed for individuals, corporations, and partnerships in financial difficulty that lack the ability to pay their existing debts. Under chapter 7, a trustee is authorized to take possession of all your non­exempt property, liquidate it for cash, and use the proceeds to pay

creditors. If your case is typical of most consumer cases, however, all your assets will be exempt; and, the trustee will never take physical possession of any of your property.


The case is begun by filing the official petition, schedules, and a statement of financial affairs. Those forms list all your assets and all your debts, along with some recent financial history. Filing this petition triggers the “automatic stay,” which means your creditors must cease all attempts to collect.


You must attend one meeting, called a “341 Meeting.” At this meeting, the trustee will place you under oath and can ask you questions about assets and liabilities. The trustee will also give creditors the opportunity to question you on these subjects. But creditors rarely appear at these meetings.


After your “341 meeting,” your only responsibility will be to cooperate with the trustee in providing any information he or she requests. Creditors and the trustee have a 60­day period after the 341 meeting in which to challenge your right to a discharge or the dischargeability of a particular debt. Such actions are relatively rare; which means that, in most cases, the court issues a discharge shortly after this 60­day period.

Your discharge means that no creditor can hold you personally liable for any debt you owed on the day you filed bankruptcy. It does not, however, prevent a secured creditor from picking up its collateral if you fall behind on the payments. Moreover, there are some exceptions to this broad discharge provision such as, taxes, student loans, court fines, traffic tickets, DWI damages, and child or spousal support. If these non­dischargeable debts are significant, you might consider filing under Chapter 13.

Many people who come through our office do so after a long, heartfelt struggle to pay their debts.  They have exhausted all resources and sacrificed much in order to attempt to get their finances in order.  Still, many are left falling short with no other way out.

If you are desperately avoiding bankruptcy because you feel it is wrong or immoral, think about this:   Congress has enacted laws for bankruptcy to keep it from being used for immoral purposes.  For example, someone with excessive assets can not file bankruptcy and keep all of their things.   Debtors making too much money must pay back some of their creditors.  If you owe money on a house or a car, you must pay that loan in order to keep that property.

Filing bankruptcy does not mean you are skipping out on all of your responsibilities, nor does it mean that you are simply giving up.   Bankruptcy can be an essential “reset” button to help you get your life in order and start fresh.

The point is, the bankruptcy laws were enacted by Congress to balance competing interests. We must balance our financial responsibilities with the responsibility of caring for our families and providing for our futures.  There are times in which we simply can not do both.  That is where bankruptcy can come into play and assist you in getting back on track.

If you have found yourself between a rock and a hard place, please know that you will find no judgment in our office.  We are here to help you.

  1.    Can I file bankruptcy without my spouse?


  1.    If I file bankruptcy without my spouse, must I list my spouse’s assets?

   Yes.  You must list all of your spouse’s assets, including your spouse’s separate assets.

  1.    What is a separate asset?

   A separate asset is one that your spouse acquired before you married (unless the asset has been refinanced during the marriage or your spouse has given you an interest in the asset) or an asset acquired by inheritance.

  1.    Must I list my spouse’s debts?

   Yes.  You must list all community debts.  You need not list your spouse’s separate debt however.

  1.    What is a community debt?

A community debt is—as a general rule—a debt that you and your spouse incur during the marriage.

  1.    What is a separate debt?

A separate debt is—as a general rule—a debt that you or your spouse incurred  before the marriage.

  1.    If I file bankruptcy without my spouse, will my bankruptcy hurt my spouse’s credit?

   Probably, but whether it damages your spouse’s debt will depend upon a number of factors, including the duration of the marriage, whether you share the same last name, and whether you applied for your credit card before or during the marriage.  Do not file bankruptcy if you are worried about injuring your spouse’s credit.

  1.    Will creditors be able to collect from my spouse for the debts included in my bankruptcy?

   The answer to this question is a qualified no.  Creditors will not be able to go after community property to satisfy their claims.  Because

property acquired after the marriage is—as a general rule—community property, your spouse will be protected for so long as you remain married.  But, remember, only community property is protected from creditors’ claims.  If your spouse has separate property, your community creditors may satisfy their claims from your spouse’s separate property.

  1.    What happens if my spouse and I divorce?

When you divorce, the divorce court will divide your assets, which will turn community property into separate property.  Creditors will be able to pursue your spouse for payment because your spouse will now have separate property from which she or he will be able to satisfy the debt.

Credit reports often contain errors.  If you want to build or maintain good credit, you should take steps to correct any error as soon as you spot one.

The first step is to obtain a credit report.  You are entitled to one free credit report per year from each of the three major credit bureaus.  You can obtain them on line or by mail.

All three credit bureaus allow you to dispute errors using online forms.


But, disputing your credit report by email is a huge mistake. The forms only help the bureaus steer your issue into one of their dispute “buckets,” helping the agency automate your claim. It also means you’ll have less of a paper trail to demonstrate negligence later on.

You should hear from the credit bureau in about 45 days.  If you have waited 45 days and still have not heard from the bureau, you need to take further action.

  1. Request a review in writing

The bureaus also include a “Request for Reinvestigation” or “Dispute” form with your credit report.  Fill out the form, listing the errors and advising the bureau of the correct information.  Always send the form by certified mail, return receipt requested so you have proof of the date that you sent in your request.

It’s always good to send the dispute to all three bureaus. While the reports can differ, the reports generally overlap and a black mark on one report usually becomes a black mark on all three. So while there may only be one bill in dispute, you probably have three disputes on your hands.

The credit bureau should contact your creditor to verify the information.  If the creditor cannot verify the information, the credit bureau must remove the erroneous information from your report.

If the error is not corrected within 45 days, write your own letter with narrative detail and supporting documents. That will help a lawyer make a case later than the bureau didn’t perform even the most basic investigation.

  1. Also notify the creditor

Send a separate, return-receipt-requested letter by certified mail to the creditor demanding an investigation of the debt.  Ask for all paperwork documenting the debt. If the creditor does not respond within 45 days, the debt must be removed from the credit file.  And, even if the creditor does respond, it is likely that the creditor will be unable to produce the requested records.  If your creditor cannot provide those records, you have an additional basis to ask them to remove the debt from your credit report.

Remember, send a copy of this letter to each credit bureau by certified mail, return-receipt-requested.  And, retain a copy of all four letters for your files.  If you have to sue the creditor, you will need to show the court records of your correspondence.

  1. List all account numbers

Unfortunately, creditors and debt collectors have a nasty habit of changing account numbers each time the account changes hand or the creditor changes entities.  Read your credit report carefully to see whether the debt shows up on more than one line or under more than one name or account number.  When filing dispute letters, include all possible account numbers. If you ever have to sue the bureau or creditor, you do not want to have them defend that they deleted the one account number that you disputed.

  1. Give the bureau specific steps to take to complete the investigation

If you can, you should explicitly recommend the steps that the credit bureau should take to investigate the matter. For example, if you’ve spoken to the creditor’s representative who admits the error, tell the credit bureau to call that creditor and interview the operator. The bureau may not do this, but this inclusion could help a lawyer at a later date persuade a judge that the bureau didn’t take even the most obvious steps to resolve the dispute.

  1. Discredit the creditor

A little legal legwork can help make your case, too. If there is evidence that the creditor involved in your dispute has a reputation for complaints of inaccuracy, include that evidence in your letter. This will help build the case that the bureau should not have presumed the creditor was accurate.

If the error persists, you may have to threaten a lawsuit.  And, if your threats don’t spur the villains to action, you may have to actually file a lawsuit.  But to win your lawsuit, you have to prove more than a simple mistake occurred.  You will have to prove that the bureau or the creditor was negligent. The mere threat of a lawsuit might gain you satisfaction, but you’ll have an empty threat if you don’t have good records to show that the bureau and creditor ignored your repeated requests.  By taking the above steps, you will have created a law-suit ready paper trail.

A bankruptcy exemption is a privilege, granted by law, to persons who file bankruptcy.  The privilege allows you to withhold certain classes and amounts of property from creditors.

If you file bankruptcy in the State of Washington, you will have the choice of using either Federal Bankruptcy Exemptions or Washington State exemptions.  Your choice will depend upon the kinds of property you have.  For example, if you have a home with a lot of equity, you will probably want to use Washington exemptions.  On the other hand, if you have a small amount of equity in your home but a large amount of cash, you will probably want to use federal exemptions.

To determine what property is exempt, start by making an inventory of all your property, including all real estate, vehicles, household goods, furniture, appliances, cash, money on deposit in any checking or savings accounts, prepaid rent, etc.

Next, list the replacement value for each item of property.  The replacement value is the cost of replacing the item in its present condition.  For example, if you have an old couch, you would likely find a replacement for that couch at a garage sale or at the Salvation Army or Goodwill.  In fact, the Salvation Army’s website will have a list of approximate values for a variety of household items.  Other sources of information include Kelly and NADA Bluebooks, Craig’s list, e-Bay, newspapers, and trade journals.   Real estate values can be estimated by reference to

Once you have determined your property’s replacement value, compare the replacement value of each item to the list of either State or Federal exemptions.  Remember, you may not mix and match State and Federal exemptions.  If you choose Federal Exemptions for one item, you must use Federal Exemptions for all items.  If you choose State Exemptions for one item, you must use state exemptions for all items.

If you have concerns over protecting your property while filing bankruptcy,  please contact us for a consultation.  In most cases, we can  protect all of your property.

Will have to give up any of my property to my creditors?

The vast majority of filers get all or most of their debts discharged (wiped-out) without giving up any of their own property.

Federal and state laws provide exemptions for your property. Exempted property is property such as household goods and personal belongings, which you may keep despite your bankruptcy.  In most cases, the exemptions provided by law are more than sufficient to protect all of your assets.  If they are not sufficient and you have property that will be left exposed if you file bankruptcy, your attorney will discuss your options with you.


If you have a home mortgage, you know that you must keep the property insured.  You must also insure your lender by listing it as a loss-payee.

In the event you allow your insurance to lapse or fail to name the lender as an additional insured on your insurance policy, the lender will purchase insurance on your behalf and will charge you for it—at an inflated price.  This is called force-placed insurance.  The cost can be two or three times the cost of insurance that you pay for yourself.

In addition to the inflated price, force-placed insurance does not protect you or your property.  Force-laced insurance covers only the value of the property up to the loan balance.  It does not cover any equity in your home.  If your house burns down, force-placed insurance will pay off your mortgage; and, you will receive nothing.  Force-placed insurance will not cover the contents of your home nor will it  cover the damages incurred by anyone who is injured while on your property.   If the injured party sues you, you are on your own.

This overpriced insurance is a huge profit center for the lender, who gives kick backs to the insurer for selling it overpriced coverage, and a huge liability for you.   The lesson to be learned is that you cannot shift the cost of insurance to your lender without risk. Take steps to get your own insurance.

For less money you can get coverage that actually protects you.  You need protection even if you intend to walk away from your home.  You probably won’t care about the consequences of having force-placed insurance if your house burns down, but you will care if someone sues you for injuries they sustain while on your property.  Force-placed insurance will not cover those injuries.  You alone will be responsible to pay for the injured party’s damages for so long as your name is on title.

Be careful!

A garnishment is a court order (called a writ of garnishment) directing a third party (generally your employer or bank) to turn over money belonging to you that it has in its possession or control.  A court will not issue aAwrit of garnishment@ unless the applicant has already obtained a judgment establishing that you owe the applicant money.  (Note: the IRS and state tax authorities can garnish without first obtaining a court order.) Because a court has already determined that you owe the applicant money, it is too late for you to defend against the garnishment on the grounds that you do not owe the money.

The applicant will serve the writ of garnishment on the third party.  The writ will direct the third party to verify that it has money owed to you in its possession or control.   Because a court has already issued an order that you owe the applicant money, the third party cannot challenge the applicant’s right to garnish.  If the third party does not have money owed to you in its possession or control, the third party can defend on that ground .


In order to leave you something to live on, income (including wages and salary) can only be garnished up a certain amount or percentage. For most debts the third party must send the applicant the lesser of 25 % of your disposable income or the amount by which your weekly income exceeds 30 times the federal minimum wage, which is at present $7.25 per hour.  In other words, the third party must leave you with at least $217.50 per week.

ADisposable income@ means all income remaining after any deductions mandated by law, such as federal income tax, social security, medicare, employment security or industrial insurance.

Some creditors can garnish more than 25% of your disposable income.  Creditors to whom you owe child support will be able to garnish up to 50% (or more).  The government can also garnish more than 25%.

Some laws protect the kinds of income that can be garnished.  For example, under federal law Social Security can be garnished only for child support, alimony, federal taxes, and a few other, narrowly defined federal debts.  Washington State law also protects retirement benefits and pensions, and many distributions from 401(k) plans or IRAs, unemployment compensation, worker=s compensation, aid to families with dependent children, general assistance, crime victim=s compensation, and old age assistance, fraternal society benefits; disability benefits; and life insurance or annuities proceeds in many situations up to $2,500 per month.


Are your wages being garnished?

When you allow your debts to go unpaid long enough, creditors may turn to the law to get you to pay.  They will begin by filing a complaint, which they will send to you along with a Summons.    A Summons is a legal document issued to you by a court in a legal proceeding.  The Summons will announce a date by which you (the defendant) must respond in writing to the opposing party.

If you do not respond to the Summons, the court will grant a default judgment to the creditor without notifying you.  Once a default judgment has been entered, the creditor will have the legal right to garnish your wages and bank accounts.  A creditor can not garnish your wages or bank accounts without a judgment, with the exception of most government agencies.

In order to slow down this process, you should respond immediately to any Summons or complaint you receive.  By sending a written response, the creditor will not be able to obtain a default judgment without notice and you will be given a court date where you can defend yourself.   If you owe the debt, the court will still grant the creditor a judgment against you.  However, you should have ample time to file bankruptcy before attending your court hearing.  Once you file bankruptcy, the creditor will be unable to obtain a new judgment or collect a previous judgment against you.

In the event that you are already being garnished, it would be in your best interest to contact our office immediately.  We can stop the garnishment and in many cases we can also get some of the garnished funds returned to you.

Please note that some garnishments, such as child support or criminal fines, can not be stopped with a bankruptcy.   Call our office if you would like to speak to someone about your situation.

Millions of homeowners who were forced into default during the housing slowdown will, as a result of changes to FHA and Fannie Mae guidelines, no longer have to wait two or three years to qualify for a new mortgage.

The refinancing boom is over as housing prices increase and investors drop out of the market.    Lenders are looking for a way to capture more business.

The Federal Housing Administration will approve certain borrowers for a home loan just one year after a foreclosure, short sale, deed in lieu of foreclosure or bankruptcy. FHA’s previous time line was three years for a short sale and foreclosure and two years for a bankruptcy.

To be eligible for a fast-track loan you must have suffered a specific financial event during the recession through no fault of your own.  Also, the foreclosure or short sale should be the only blemish on your credit report; and, you must take a housing counseling class.

You will not qualify for a fast-track loan, however, if you walked away from your home simply because it was underwater.

Can my lender foreclose while I am in the process of a loan modification?

If you are in the middle of a loan modification but are also in the middle of a foreclosure you should be aware that the mortgage company could foreclose behind your back.  It is not uncommon for a debtor to be in the middle of a loan modification feeling secure while relying on the mortgage company’s promise that “we will not foreclose while you are in the process of obtaining a loan modification.”

In reality the mortgage company has already turned your loan over to a foreclosure attorney while luring you into believing that they are working on a loan modification. This dual process is called dual tracking and refers to the practice of  the mortgage company running the foreclosure process at the same time of running the loan modification process. If your lender is one of the five companies that is subject to the National Mortgage Settlement, it is required to cease all dual tracking as of October 3, 2012.   The five companies are Chase, Citifinancial, Wells Fargo, Bank of America and Ally/GMAC.

Not to be deterred , the mortgage companies  are able to get around this requirement by claiming that you never completed the loan modification paperwork or that they never received your paperwork at all.  The mortgage company will claim that there is no active loan modification and that they are free to pursue the foreclosure without violating the National Mortgage Settlement.

Fortunately, you live in the State of Washington and are privileged to take part in Washington’s Foreclosure Fairness Program.  The Fairness Program provides mediators and counselors who monitor the loan modification process, including tracking all documents that change hands between you and your lender.

Remember that you cannot blindly trust anyone when it comes to protecting your home from foreclosure.  Do not ignore the foreclosure notices no matter how many times the mortgage company representative says do not worry.   This warning applies to everyone who is attempting to obtain a loan modification from any lender, even those who are not part of the “Big Five.”

For further information, contact the following: Washington’s foreclosure hotline: 1-877-894-4663

Payday loans are convenient in an emergency, but their exorbitant interest rates can plunge you into a  debt spiral from which it  is almost impossible to escape unscathed.

Because the average interest rate on a pay day loan is 360 %, and the average borrower has no back-up savings, many borrowers find themselves having to take out a payday loan merely to pay off a prior payday loan. Since Washington’s usury laws limit to 12% the interest rate that a lender can charge on a consumer loan, you may wonder how the payday lenders have managed to skirt Washington’s usury law. The answer is that in 1995, Washington passed a payday-loan exception to Washington’s usury law on the theory that people needed to be able to take out short-term loans to take care of emergency expenses. The rationale for getting around the usury rates was that the

exorbitant interest rates would not result in large interest payments because the loans were of such a short duration.

Unfortunately, the rationale behind the legislature’s enactment of the payday loan

exception did not take into account the debt spiral that would spring from the initial pay day loan.  Instead of taking a one-time, short-term loan, many borrowers fall into a cycle of long-term, high-cost debt. Payday loans are expensive and come due quickly. As a result, borrowers are compelled to take out another loan to pay off the first and the cycle repeats. The short-term loan becomes a long-term loan at triple-digit interest rates.

In 2010, in its attempt to cut short the debt cycle, Washington passed laws to limit the

number of pay day loans to eight per year, per person, and provided borrowers with the right to convert their payday loans into installment loans. As a result, Washington payday loans dropped from more than 3 million in 2009 to fewer than 1 million in 2011.  The legislature did not outlaw payday loans however; and, the interest rates are still exorbitant.

Fortunately, RCW 31.45.073 provides many other protection. For example:

(1) You may convert your payday loan into an installment loan at a lower

interest rate.

(2) A payday lender cannot make your loan due before your next pay date. And, if your next pay date is within seven days of taking out the loan, the lender must set the

due date on or after your second pay date.

(3) The maximum amount of any payday loan, or the outstanding balances of all

payday loans you owe at any one time, may not exceed seven hundred dollars or

thirty percent of your gross monthly income, whichever is lower.

(4) The payday lender may not give you a payday loan if you are in default on any

other payday loan until after you have paid that defaulted loan in full or until two

years have elapsed from the day you took out the defaulted loan, whichever occurs


(5) The payday lender cannot give you a loan if you have taken out more than eight

payday loans in the past year. The limitation applies to an aggregate of all lenders, not eight per lender.

(6) The lender cannot charge you more than 15% interest and fees on the first five

hundred dollars and may not charge more than 10% interest or fees on any amount

over five hundred dollars.

(7) If a lender gives you more than one loan, and those loans total more that five

hundred dollars at any one time, the lender may charge no more than 10% on

everything above five hundred dollars.

(8) You may give one postdated check as collateral for each payday

loan.  The lender cannot accept more than one postdated check as collateral for each payday loan.

(9) The lender may allow you to redeem your postdated check with a payment of cash

or a cash equivalent.

(10) The lender may not accept any other property, title to property, or other evidence of ownership of property as collateral for a payday loan.

If your lender has violated any of these ten protections, you should seek the advice of counsel.

Are Social Security Payments Dischargeable in Bankruptcy?

Yes, social security disability overpayments are dischargeable in bankruptcy unless you obtained the overpayments by your own fraudulent behavior.  Debts obtained by fraud are not dischargeable in bankruptcy.

The typical scenario involves a claimant who continues to accept and receive disability payments after returning to work.  If the Social Security Administration can prove that the claimant continued to accept payments knowingly, and with the intent to deceive the Social Security Administration, the debt will have been incurred by fraudulent behavior and the debt will not be discharged in bankruptcy.

Are Social Security Disability Overpayments Dischargeable in Bankruptcy?

Yes, social security disability overpayments are dischargeable in bankruptcy unless you obtained the overpayments by your own fraudulent behavior.  Debts obtained by fraud are not dischargeable in bankruptcy.

The typical scenario involves a claimant who continues to accept and receive disability payments after returning to work.  If the Social Security Administration can prove that the claimant continued to accept payments knowingly, and with the intent to deceive the Social Security Administration, the debt will have been incurred by fraudulent behavior and the debt will not be discharged in bankruptcy.


Is bankruptcy relief available to those who profit from the sale of marijuana?  Not according to the August 28, 2014 opinion issued by the Bankruptcy Court for the District of  Colorado.

In that case, a husband and wife ran their business of producing and distributing marijuana out of their own 2-unit commercial building.  They carried on their grow operation on one side of the building and leased the other side of the building to a marijuana dispensary.  Their average  income was about $4,800.00 per month.  After the wife suffered a stroke, the couple filed Chapter 7.  There was no question that the couple needed bankruptcy relief.

The United States Trustee asked the Bankruptcy Court to dismiss the debtor’s’ Chapter 7 case because marijuana is illegal under federal law.  The US Trustee argued that to allow the debtors to obtain a Chapter 7 discharge would violate federal law.  The court agreed with the US Trustee.  In a Chapter 7 case, the Chapter 7 Bankruptcy Trustee is charged with liquidating the debtor’s assets to pay creditors’ claims.  The Court held that, even though the debtors’ business operations were legal in Colorado, they were not legal under Federal law; and, the Court declined to involve the Chapter 7 Trustee in a federal crime.  According to the Court, if the Trustee were to take control of the building he would be violating Section 856(a)(2) of the Federal Controlled Substance Act, which makes it a federal crime to manage or control any place rented out for the purpose of unlawfully distributing a controlled substance.  Moreover, if the Trustee were to auction off the debtor’s’ inventory of marijuana plants, the Trustee would be guilty of distributing a Schedule I controlled substance in violation of Section 841(a) of the Federal Controlled Substance Act.  The Court declined to involve the Trustee in the commission of a Federal crime.

Because the Court would not allow the debtors to remain in their Chapter 7 case because it would involve the Chapter 7 Trustee in the crime of distributing illegal assets, the debtors asked the Court to allow them to convert to Chapter 13.   In a Chapter 13 case, the Trustee does not liquidate assets.  Rather, the Trustee collects payments from the debtors over a period of years and distributes those payments to the debtor’s’ creditors on a monthly basis.   The Court held that conversion would involve the Chapter 13 Trustee in illegal activity because it would require the Chapter 13 Trustee to pay creditors with profits from an ongoing criminal activity.

The Court denied the motion to Convert and dismissed the debtor’s’ case.  In re Arenas, Case No. 14-11406 (Bankr. Colorado 2014).

Absolutely not! The Federal Bankruptcy Act prohibits employers from firing someone simply because they file for bankruptcy.

However, this does not mean that an employer will hire you if you have filed bankruptcy. Many employers nowadays are checking potential employee’s credit reports and a bankruptcy will show up on your credit report. For this reason, it is very possible that filing bankruptcy could affect your ability to obtain the future job of your dreams.

On the positive side, the job you have right now is protected by this federal law. An employer can not fire an employee solely for filing bankruptcy.

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