A chapter 13 bankruptcy is sometimes called a “wage earner” bankruptcy or a “reorganization” bankruptcy in Colorado. The basic idea of a Chapter 13 is that you repay some of your debt over time and are discharged from the rest of the debt at the end of your payment plan. Chapter 13 cases generally take 3 to 5 years. A Chapter 7 case discharges all of your debt immediately, so why would a person embark on a multi-year repayment plan? The reason is you can accomplish certain goals in a Chapter 13 that are not available to Chapter 7 debtors.
Protecting Valuable Property and Avoiding Foreclosures and Repossessions;
If you are behind on mortgage or car payments, a Chapter 13 plan can allow you to catch up on payments and pay the arrears over time. While a Chapter 7 can somewhat delay secured creditors, a Chapter 13 forces the creditor to accept reasonable payments over time. Also, when it comes to protecting valuable property Chapter 13 debtors are able to keep property that is worth more than the exemption amounts in Colorado. For example, for persons younger than 60 you can keep a home with $60,000 or less of equity in a Colorado bankruptcy filing. The limit for a vehicle(s) is $5,000 unless you’re 60 years of age or older. Persons with cars or homes worth more than the exemption amounts could face losing that property in a Chapter 7, while a Chapter 13 lets them keep the property. This aspect of Chapter 13 filing is particularly valuable and relevant in Colorado lately, because the real estate market is having another boom and Denver area homeowners are seeing their homes increase in value.
Piece of Mind
Owing money and being behind is very stressful. A Chapter 13 filing silences all creditors; they cannot sue you, they cannot write you, they cannot even call you once the case is filed. This can decrease stress and give people hope. Putting all debt in “one basket” and making payments is often a wise move to decrease stress and provide an end date and hope for what might otherwise seem an irretrievably negative situation.
Eligible for Discharge Sooner.
A discharge order is a court order that says all of your dischargeable debt is gone. If you filed Chapter 7 bankruptcy within the last 8 years, you are not currently eligible for a Chapter 7 discharge. You are eligible for a Chapter 13 discharge however 4 (four) years from the filing of a previously discharged Chapter 7. Importantly, Chapter 13 cases can make sense and be filed, even where a discharge is not possible. This may be necessary to take care of (in this case pay, not discharge) homeowner’s association dues, taxes or any other debt that was not taken care of in an previous case.
Importance of Qualified Bankruptcy Lawyer Who Understands Chapter 13.
Coloradans should also be aware that certain types of debt that are not dischargeable in Chapter 7 are dischargeable in Chapter 13. Chapter 7 bankruptcy also not available to certain persons because they earn too much money to qualify. In this circumstance a Chapter 13 is the only reasonable alternative. Chapter 13s can also, in certain circumstances, strip second mortgages and cram down car loans. What this means in English is that you can sometimes get rid of second mortgages and pay the value of car instead of what you owe on the car.
In general, because Chapter 13 can do certain things that a chapter 7 cannot do, you should be sure to consult with a lawyer who is aware of and qualified to help you choose which chapter is better for your situation. Sadly, many bankruptcy lawyers in the Denver area are “winging” it, or trying to earn some money while looking for different employment. If your bankruptcy lawyer is not aware of the advantages of Chapter 13 and doesn’t file them, you may be sheparded into a chapter of bankruptcy which leads to an outcome which is less than ideal.