What is Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy is a way to repay your debts over a period of time. This is usually much more favorable for the person repaying the debts. People who own assets and have a regular income may benefit from Chapter 13 Bankruptcy.
A bankruptcy filing under Chapter 13 is available to individuals or couples. It is often called a “debt reorganization” or “debt adjustment.” A debtor can usually pay back all, or part, of the debts owed, over a 3-to-5-year period. People who find themselves in a difficult financial situation can use Chapter 13 to get help. This will protect their real estate and other large assets from being taken away.
The Chapter 13 repayment plan is sometimes called a "wage earner's plan" because you have to have regular income in the future. Your future income needs to be approved or verified by the court before a Chapter 13 Bankruptcy can be filed. You'll be scheduled to make payments over a period of time until your debts are paid and then your bankruptcy can be discharged. If your plan pays all of your outstanding debts, it is called a 100% plan.
If you cannot afford a 100% plan, you can pay all of your disposable income over the life of the plan and the outstanding balance will be discharged. Your disposable income is the amount that remains after subtracting your allowable expenses from your monthly gross income.
Why You May Want to File Chapter 13 Bankruptcy
You want to protect your valuable possessions such as an expensive car, your house, or other cherished belongings like heirlooms or collections.
You want to stop a foreclosure and you want to repay your past due amount over time, rather than having to pay the total amount all at once.
Once you file for bankruptcy, the automatic stay protects your assets immediately. This ensures creditors can't touch your assets until the court has determined the rights of everyone involved.
You may be able to repay your creditors with more favorable terms. This could mean that you pay only the value of an asset rather than the remaining amount on the original loan. You could also make payments over a longer period or at a lower interest rate.
If you're unable to repay all of the money you owe to your creditors, the rest of the debt is cancelled. You don't have to pay it now or in the future.
If you do establish a 100% plan, you'll still be saving money compared to your current situation. Once the plan is begun, the interest on your credit card debts will be frozen for the life of your plan. This will allow you to pay down the balance faster instead of only making minimum payments that barely cover the interest.
Our ultimate goal is to work with you to create a plan that allows you to repay your debts while still having enough money to comfortably cover your everyday needs.
Credit Counseling Course
Once you've decided to file for Chapter 13 bankruptcy, the first step is to take a credit counseling course. You have to do this before filing and also before you are done with your bankruptcy. The Cross Law Firm will help you find and take the right course for you and also handle filing your certificates of completion with the court.
The Cross Law Firm wants to help you get your life back on track. This means more than just filing for bankruptcy. In order to file for bankruptcy in Colorado, you're required to take a pre-filing and post-filing course. We offer these courses through professional relationships that can save you money on the front end.
Filing for Chapter 13
When you're ready to file your Chapter 13 Bankruptcy petition, we'll help you fill out all the documents and make sure everyting is done completely and accurately. When you file for Chapter 13, the court will ask you to pay a filing fee. This fee is $313 in Colorado at the time of writing. Once you file, an automatic stay is put into place. This means that your creditors can't contact you and try to get money from you. Unless the court says otherwise, your home, car, and other belongings are safe.
Once we've completed your petition and filed your plan with the state of Colorado, a trustee will be assigned to your case. This person is responsible for making sure everything is in order and that you are following the current laws when it comes to repaying your creditors. They also need to make sure that your repayment plan is reasonable and will help you get back on your feet.
After your plan is approved, your trustee will take your monthly payments and give them to your creditors. The trustee is the middleman who makes sure that you never have to talk directly to your creditors.
Now It's Up to the Court
We'll help you provide information to the Colorado Bankruptcy Court about your debts, income, and expenses. We'll give them the list of all your creditors, income sources, and how much money you spend each day and month. They'll also have a copy of your recovery plan that explains how you'll pay back your debts over time. Your assigned bankruptcy trustee will be there for you to help manage the process and communicate with your creditors on your behalf.
We'll make sure your repayment plan is reasonable and achievable. The court will look at your income and decide if the repayment plan you have chosen allows you to repay your creditors, keep making your current payments (mortgage, car, etc.), and still have enough money for your daily living expenses.
The court will look at your repayment plan and decide if it is good or not. This will happen during the confirmation hearing. If you have help from a good bankruptcy law firm, like The Cross Law Firm, your repayment plan will be stronger and have a better chance of getting approved by the court.
Although your intent is to repay your debts using an acceptable repayment plan, your creditors do have the right to challenge your plan during the confirmation hearing. Even though they may not agree with all or part of your plan, the final decision lies with the court. To make sure your repayment plan is approved, it is important to have an experienced Chapter 13 attorney by your side fighting for you in court.
Types of Debt Dischargeable in Chapter 13
When you file under Chapter 13, the things you owe that are considered"priority debts" still have to be paid.
Priority debts also include :
- Wages, salaries, or commissions you owe to employees
- Taxes that are due
- Money that you borrowed from a pension plan
- Child support and alimony payments
- Debts incurred because of personal injury caused by you while operating a vehicle while intoxicated
Things that you owe that are not "priority debts" but are secured by physical property do not necessarily have to be paid. But if you keep making payments on the secured debts, then you can keep the things you own. If you stop making payments, then the people who lent you money for those things can take them back.
Secured debts include :
- Your mortgage
- Your car loan
- Past due amounts owed on your home or car loan
Unsecured debts that do not have to be paid include:
- Credit card bills
- Medical bills
- Payday loans
In Chapter 13 bankruptcy, you pay back your debts in order of priority. The first debts to be paid are back taxes and other priority debts. After that, you can choose to keep your secured assets or not. Unsecured creditors come last and, depending on your income and your bankruptcy plan, you may not have to repay your remaining debt in full.
How to Qualify for Chapter 13
In order to file for Chapter 13 bankruptcy in Colorado, you must be an individual or couple and have a steady income. You must also have a debt that is below a certain threshold. Specifically:
You need to show proof you can afford to pay for your past debts and your current payments. This proof can come from many different sources, such as your salary, pension, rents, social security, or property sale.
You must be an individual or couple: Chapter 13 does not apply to businesses or organizations.
Your unsecured debts must be less than $394,725 and your secured debts (e.g. home mortgage) must be under $1,184,200 (numbers valid through 2022).
If you are struggling with unsurmountable debt, it is important to seek immediate help from a qualified bankruptcy law firm like The Cross Law Firm. Our 35+ years of experience as a Colorado Bankruptcy Attorney can help you create a repayment plan that is reasonable and achievable. We'll also help you defend your repayment plan in court. If you want to keep your assets, it is important to make sure your repayment plan is approved by the court.