A Chapter 13 bankruptcy requires a person to repay some of his or her debts (unlike a Chapter 7 liquidation). Although there can be benefits to a Chapter 13, generally, people file Chapter 13 because they make too much money to file a Chapter 7 bankruptcy.
In a Chapter 13, a debtor must pay some money back to creditors over a period of 3-5 years. The length of a Chapter 13 plan and the payment amount depends on a person's income, family size and other factors. In order for a Chapter 13 bankruptcy to proceed, the Chapter 13 repayment plan must be approved by a bankruptcy judge. While the amount a person must repay in a Chapter 13 depends on that person's income, it is important to note that a person must pay at least as much in a Chapter 13 as creditors would receive had that same person filed for Chapter 7 bankruptcy protection.
Some people choose to file Chapter 13 even thought they would qualify for a Chapter 7. This is because Chapter 13 bankruptcy offers some benefits that a Chapter 7 does not. One benefit is the ability to cure arrears on a primary residence. If a person is behind on their mortgage payments, they can use a portion of their Chapter 13 plan payments to cure those mortgage arrears. Similarly, debtors can repay their tax debt through a Chapter 13. Tax debt is generally considered a "priority debt" and will be repaid before most other creditors. Finally, there are certain debts which can be discharged in a Chapter 13 but not in a Chapter 7.
If you are considering filing for bankruptcy protection in Colorado, it is important to discuss your case with an experienced Colorado bankruptcy attorney. Whether you should file a Chapter 7 or a Chapter 13 depends on many factors and making the wrong decision can be very costly. At Aguero Law, we have helped hundreds of clients determine which chapter of bankruptcy is right for them. If you have questions about which chapter of bankruptcy to file, call us today for a free consultation.