Deciding to file for any type of bankruptcy is a difficult decision. But, if you find yourself unable to meet your debt obligations, it may be your best option.
There are different types of bankruptcy in Colorado depending upon your needs and specific circumstances. By far the most common filing is Chapter 7 bankruptcy, which is a total liquidation of debt. Chapter 11 is a bankruptcy reserved for businesses and a few individuals who owe very substantial amounts. Chapter 12 is a bankruptcy filing exclusively designed to meet the needs of farm families.
Chapter 13 bankruptcy, which is a reorganization of debt, not a liquidation, is often the filing of choice for individuals or families who fit one or more of these conditions:
- Have too much disposable income to qualify for Chapter 7 bankruptcy
- Face foreclosure or repossession of property they do not want to lose
- Have sizable equity in a small business or other assets
- Owe a lot of taxes that can’t be discharged in bankruptcy
- Have filed for Chapter 7 bankruptcy within the past eight years
A Chapter 13 bankruptcy is a much more involved process than a Chapter 7 filing, and demands the expertise and strategic abilities of an experienced bankruptcy lawyer. The right lawyer can save you thousands of dollars and is an investment well worth any expense incurred. Legal fees charged through a Chapter 13 bankruptcy filing can be paid back over time like the debts included in the filing.
The following answers to commonly asked questions will clarify some of your confusion about Chapter 13 bankruptcy in Colorado.
How do I know if I qualify to file for Chapter 13 bankruptcy?
In order to file for Chapter 13 bankruptcy, your unsecured debt must be less than $383,175 and the amount you owe on vehicles loans and mortgages must be under $1,149,525. In addition, you must be able to demonstrate that you have enough income to meet your monthly expenses with some left over to apply to debts included in your bankruptcy.
What are the advantages of filing for Chapter 13 bankruptcy?
A Chapter 13 bankruptcy allows you to keep property you would lose to creditors in a Chapter 7 filing. However, you must repay the assets’ value to your unsecured creditors. Chapter 13 also:
- Protects your home from foreclosure
- Allows you to make up missed car and mortgage payments
- Helps you pay back taxes and stops interest from accruing on tax debt
- Allows you to keep some nonexempt (unprotected) property
- Protects your joint accountholders and co-signers from collectors coming after them
- Immediately puts an end to creditor harassment
- Gives you more time to repay debt that looks impossible to meet in your current situation
- In certain circumstances a second mortgage obligation can be eliminated
How does the court determine how much of your debt you have to repay in a Chapter 13 bankruptcy?
In order to even be permitted to file Chapter 13 bankruptcy, you must have a regular source of income that leaves you with enough disposable income after you’ve paid your monthly living expenses that you can make consistent progress in paying down your debts. How much you must repay depends on the amount of disposable income the court believes you have that can be devoted to your repayment plan or the value of your nonexempt assets over the allowed equity limits. The total amount of debt you repay through your Chapter 13 bankruptcy cannot be less than you would have to repay creditors if you were to file Chapter 7 bankruptcy.
How does the court determine which creditors get paid first?
Bankruptcy law establishes different classes of creditors and something of a priority for their payment.
Here are the four groups:
- Class 1 creditors. Those owed debts for non-dischargeable taxes, attorney’s fees, child support and alimony
- Class 2. Those owed debts for late mortgage or car loan payments
- Class 3. Those owed debts for crammed down car loans (where the principle amount owed is reduced to the current value of the vehicle) and secured IRS debt
- Class 4. Those remaining unsecured creditors such as medical providers, credit card companies, etc.
How does a Chapter 13 bankruptcy work?
After strategizing with your lawyer and analyzing your financial situation, you propose to the court a three to five year repayment plan for all or a portion of your debts. Payments will be made from your future income. If your plan is accepted and you make all your payments on schedule, your debts will be released at the end of the established repayment period.
How will a Chapter 13 bankruptcy affect your credit?
The bankruptcy will stay on your credit file for seven years to 10 years. After this time period in addition to the bankruptcy being removed from your record, any negatives from your current report, such as late payment notices etc., will be wiped out. This does not mean that you will have bad credit for that whole time. If you are proactive about managing your credit you can see a significant increase in your score within a few years of the filing.
We can help
If you are considering filing for Chapter 13 bankruptcy in Colorado, make your first call to the bankruptcy lawyers at Robinson & Henry in Castle Rock, Denver and Colorado Springs. We have years of experience helping clients sort through their finances and come to decisions that offer the best possible outcome for their future. Call 303-688-0944 for friendly, knowledgeable help as you face this challenge.
One of our attorneys, Elizabeth “Liz” Domenico has years of experience helping clients with bankruptcy and debt settlement issues.