Colorado Non Consumer Ch7 laws

[cofer22]

Hey Everybody,

Is Colorado Non Con. chapter 7 different than in other states. We filed NC ch 7 up in Idaho and it went off without a hitch, but a friend of mine is telling me that in Colorado he and his wife have to take the means test to qualify . At least that is what a attny is telling him. Is that correct? Didn't sound right to me. I told him that he just needed to show that his rental business debt was over 50% of his total debt and that he would qualify.
Looking for some clarification.

Jeff

[nohoneymoney]

I suggest that you tell your friend to talk to another lawyer. The requirements for consumer v. non-consumer are part of federal law not state law so I don't see how a state could require a means test to qualify. That said I don't live in CO. So have them talk to another local lawyer. My 2-cents

[cofer22]

I told him the exact thing.

[HHM]

It is not a state by state thing.

Now, as part of the analysis, the attorney will still do a means tests, but if the case is really non-consumer, then it is non-consumer.

I suspect there may be some filtering of info and perhaps your friend is telling you the whole picture, perhaps he really isn't non-consumer. The big catch with non-consumer is the mortgage on a persons primary residence, that mortgage COUNTS as consumer debt in the calculation. So, many would-be non-con debtors find out, they really aren't non-con because when you factor in the mortgage, they now have more consumer debt than non-consumer debt.

[kchap311]

Hello everyone,
I am the fellow Cofer is speaking of. My primary is -88k loan to value currently. I have two other properties and they are -127k, and -124k loan to value. I am married working full time with a spouse that works part time and the lawyer mentioned that she'd have a hard time getting us below the threshold for Colorado median income for a household of three (we have a daughter). She was not emphatic about pushing us towards a Chapter 13bk but our conversation seemed to keep coming back to it as our best option. She mentioned that to be eligible for nonconsumer ch 7 i would have had to purchase the two investment properties within some type of entity such as an LLC for it to qualify as business expense.
I appreciate everyone's patience with me as i am just starting this process and my head is swimming in all of the lingo.
Thanks!

[HHM]

Kchap311, speak to another attorney, she is dead wrong.

However, you would have needed to buy the properties "as investment" properties. Meaning, the stated intention of the mortgage loans must NOT have been, owner occupied. A common hurdle to non-con 7's is the individual who buys a condo, lives in it for a while, then buys a house, and then rents the condo. The stated intention of the mortgage on the condo is "owner occupied", as such, even though you are now renting it, and even though under IRS regulations (if it has been rented for 2 of the last 5 years, or something like that, I forget the particulars) the DEBT was and is, a consumer debt for purposes of the bankruptcy. The general rule, a debt is consumer or non-consumer based on the "original intent" of the loan.

Other types of non-consumer debt
1. Income tax debt
2. Student loans (that portion used for true education expenses, tuition, books etc).


The average BK attorney, surprisingly, is not well versed in the non-consumer aspect of chapter 7 BK and is scared of it.

[kchap311]

Thank you HHM, this clarifies it completely. I DID buy both of the others with the intent of living in them. I did not classify the mortgages at the onset of them as investments.

[kchap311]

HHM would the length of time i have rented the properties in question have any bearing on whether that debt is considered business debt? Or does the fact that i slated those mortgages as primary residences immediately and completely disqualify that debt as business debt?

[HHM]

HHM would the length of time i have rented the properties in question have any bearing on whether that debt is considered business debt? Or does the fact that i slated those mortgages as primary residences immediately and completely disqualify that debt as business debt?

That is the arguable point, generally, the cases seem to favor the "original intent" of the loan analysis. However, the IRS code does state that after so many years of renting, the property becomes an investment property for purposes of Capital Gains/Loss, but that provision appears to have limited persuasiveness. You will need to find an attorney willing to make that argument (and pay them a hefty sum to do so), and in Colorado, the outcome will very much depend on the judge, but I think you are fighting the uphill battle and would need to go into it with the mind set that you would likely lose the argument.