Advantages of Chapter 13 Bankruptcy

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.  

 

 

 

 

 

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Filing Bankruptcy to Prevent Wage Garnishments in Colorado

 

Both Chapter 7 and Chapter 13 bankruptcy clients in the Denver area can face wage garnishments from creditors. These wage garnishments are often the “last straw” for debtors, leading them to the Bankruptcy Court for relief and protection from their creditors. I have never had a client who is excited about the prospect of bankruptcy. Often however, filing for bankruptcy is necessary to prevent a garnishment, either of wages or bank account funds (in Colorado a seizure of your bank account funds is called an “attachment”).

Bankruptcy can help you maintain your ability to pay rent or the mortgage and feed your family. In this situation, a properly planned and filed bankruptcy becomes a necessity for many families.

Because of the automatic stay in bankruptcy, found at 11 U.S.C. 362 for both chapter 7 and chapter 13 cases, the wage garnishment a debtor is facing can be stopped, or even completely prevented, if the bankruptcy filing occurs before they take your wages.

Typically, creditors in Colorado can only garnish, or take, 25% of your gross paycheck. Creditors do have to get a judgement before they can garnish, and there are Colorado state law remedies to prevent a garnishment or address an improper garnishment. But with Colorado state law remedies, you have to go to state court to get your money back and that takes time and effort. Meanwhile, you are short 25% of your paycheck.

A step I regularly take in this instance is to contact the bankruptcy client’s payroll department, and the creditor, to be sure they have the notice of the bankruptcy filing as soon as possible. I often have this notice to the payroll department and the creditor within moments of filing the bankrutpcy case for my clients. Often times the payroll department at your employer may be confused about the law, or afraid to stop a garnishment because of a bankruptcy filing. In this instance the best practice is to contact the responsible person directly. This is something I do a number of times per month, because it is the best practice for my clients.

Assuming you qualify for bankruptcy, and have a need for a bankruptcy, you can take advantage of the automatic stay in bankruptcy by filing your case as quickly as possible. Because I have been filing cases for 20 years, I am often able to put together a bankruptcy case very quickly for my clients who are facing a wage garnishment in Colorado.

Unfortunately, the first notice you will get of a garnishment is after you get your paycheck and it is missing 25% of your wages. So if you have judgements against you, and you are unable to pay your debt it often makes sense to consult a qualified bankruptcy lawyer before this becomes an issue. In some cases you can get garnished funds back from the creditor, but this usually means the money is split up among your various creditors, not returned to you. Therefore, a wage garnishment is sunk money in Colorado, it is gone and cannot be recovered, and therefore you should seek out legal help before it happens.

Student loan creditors do not have to get a judgement before they can garnish your wages. Though, if they take this direct route, they can only garnish 15% of your wages. And the automatic stay will prevent or stop student loan garnishments as well and this protection will remain in place until your case is over. However, defaulting on a federal student loan involves an unreasonable amount of late fees and penalties. It makes sense to seek out the help of a bankruptcy lawyer if you are at the point where student loans are threatening to garnish your wages. There are a number of ways to address the situation which may save you money in the long run.

 

 

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Bankruptcy Glossary- Basic Terms Defined

Bankruptcy Terms Glossary

Automatic Stay:

An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

Bankruptcy Code or Code:

The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.

Discharge:

A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)

Exempt Property:

Property owned by the Debtor(s) which is protected from the creditors in a bankruptcy. For example, in Colorado you can have $60,0000 or $90,0000 exemption for equity in a home where you live

Means Test:

Section 707(b)(2) of the Bankruptcy Code applies a “means test” to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13).

Priority Claim:

An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.

Proof of Claim:

A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)

Preference:

A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor’s chapter 7 case

 

341 Meeting:

The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors’ meeting.

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