Chapter 13 Bankruptcy in Denver, Colorado

Attorney going into court house

“Under Chapter 13 Bankruptcy, you can substantially reduce your debt into affordable monthly payments, while saving your home and car.”

Unlike a Chapter 7 Bankruptcy, which involves liquidation of certain non-exempt assets, Chapter 13 bankruptcy allows a debtor to restructure debts by paying off creditors with a new payment plan. For employed people with income but who are also drowning in high debt, Chapter 13 Bankruptcy is an ideal option.

Chapter 13 Bankruptcy Repayment Plan

Under Chapter 13 bankruptcy, a debtor is allowed to reorganize his or her debts by submitting a Chapter 13 bankruptcy repayment plan to the bankruptcy court. The Chapter 13 bankruptcy repayment plan is designed to allow debtor to restructure the debt into manageable payments over a three to five year period. The payment amounts and the duration of the repayment obligation depend on the debtor’s disposable income. Instead of paying the creditors directly outside of a bankruptcy, the payments made by a Chapter 13 debtor go to the Chapter 13 Bankruptcy Trustee. The Chapter 13 trustee in turn distributes the payments to the debtor’s unsecured creditors. Under Chapter 13 bankruptcy, a debtor no longer needs to deal directly with the creditors, their legal representatives, or their collection agents.

In a Chapter 13 bankruptcy case, the debtor must make the payments based on his or her disposable income. These payments go to the Chapter 13 Bankruptcy Trustee on a monthly basis for at least 3 years (36 months), and at maximum, 5 years (60 months). The duration of the repayment plan depends on the circumstances of each Chapter 13 bankruptcy case, i.e. the disposable income of the debtor and the type of debt owed. The amount of monthly payments may also vary based on the type of debt the debtor owes. The structuring of a Chapter 13 repayment plan can get very complicated, especially when the debtor owes priority debts or other secured debts.

Under a Chapter 13 bankruptcy repayment plan, all secured debts in arrears for vehicle or mortgage loans must be fully accounted for 100% if the debtor intends to keep the secured asset. All priority debts, such as tax liabilities, child support and maintenance obligations, must also be fully accounted 100% in the Chapter 13 debtor’s repayment plan. In other words, 100% of said secured debts in arrears and priority debts must be paid back during the duration of the debtor’s repayment plan. An example of this would be, assuming a Chapter 13 debtor owes $50,000 in mortgage arrears, $5,000 in vehicle loan arrears, $10,000 to the IRS for federal tax debt, and $5,000 to the Colorado Department of Revenue for state tax debt. In order for the Chapter 13 repayment plan to be confirmed, the debtor would be required to propose a minimum of $70,000 into the repayment plan over the duration of the plan. If the debtor is unable to propose a repayment plan with enough monthly disposable income to account for the minimum payment over the duration of the Chapter 13 repayment plan, the bankruptcy court would reject the proposed plan.

Additionally, in a Chapter 13 bankruptcy, all unsecured creditors are rightfully entitled to receive some of the payment made under the repayment plan through the Chapter 13 Bankruptcy Trustee. However, the unsecured creditors must timely file with the bankruptcy court the appropriate proofs of claim against the debtor. The repayment plan must propose to pay at least a small percentage to the unsecured creditors. This payment is called the “dividend to the general unsecured creditors.” However, payments to the unsecured creditors do not need to be fully accounted for 100% when proposing a Chapter 13 repayment plan. Most unsecured debts, such as medical bills, credit card debts, and personal loans will mostly likely receive a discharge under a Chapter 13 bankruptcy if the debtor completes his or her payment obligations over the duration of the repayment plan. This means at the end of the repayment plan period, any unsecured debt that has not been paid back through the Chapter 13 Bankruptcy Trustee will be fully discharged much as in a Chapter 7 Bankruptcy.

Benefits of Chapter 13 Bankruptcy versus Chapter 7 Bankruptcy and Reconciliation

Most consumer debtors would prefer to file for Chapter 7 Bankruptcy to clean the slate. However, there are a number of advantages to file for a Chapter 13 bankruptcy case over a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy case, a debtor falling behind on mortgage payment, vehicle payment, or any other loans secured against personal or real property is allowed to pay those shortcomings back through the Chapter 13 repayment plan. This is true as long as the debtor is able to continue making the regular payment for the secured debts once the debtor’s Chapter 13 bankruptcy case is filed with the bankruptcy court. It is a common practice among many consumer debtors who would otherwise be eligible to file for Chapter 7 bankruptcy to instead file for Chapter 13 bankruptcy as a tactical move to stop a foreclosure on their homes and to cure the deficiencies over the duration of the Chapter 13 bankruptcy repayment plan. In short, Chapter 13 bankruptcy may be a viable option for those debtors who have fallen behind on a mortgage or car payment, but who fully intend to keep their home or car and want to get back on schedule with their house or car payments.

In Chapter 13 bankruptcy, some unprotected property (non-exempt real or personal property that would not have received the protection of the appropriate exemption law) may be kept by proposing to pay more money every month to the Chapter 13 Bankruptcy Trustee under the debtor’s Chapter 13 bankruptcy repayment plan. The reorganization of payments in this manner is commonly known as “Chapter 7 bankruptcy reconciliation for the Chapter 13 bankruptcy repayment plan.” The need for Chapter 7 bankruptcy reconciliation usually arises when a portion of the properly appraised value of a real or personal property is not protected by the appropriate exemption law. In such case, the non-exempt portion needs to be “reconciled” or cured. For example, under Colorado law the homestead exemption for a debtor who is under 60 years of age is $60,000. The debtor owes $300,000 on mortgage in arrears. The house has been properly appraised at $400,000. The home may have an equity of $100,000, which is what the debtor would receive after selling the home and paying off the mortgage. The equity in the home may only be protected under the Colorado homestead exemption for up to $60,000, as indicated above. This leaves $40,000 of equity in the home unprotected under the homestead exemption. Normally, in a Chapter 7 bankruptcy proceeding the debtor would have too much equity in the house, which will cause the forced sale of the house by the Chapter 7 Trustee, a process known as liquidation of assets. However, under Chapter 13 bankruptcy the debtor may still keep the house even though it is not completely protected under the homestead exemption so long as the proposed Chapter 13 repayment plan accounts for the additional $40,000 to be paid over the duration of the repayment plan to payback the unsecured creditors.

Chapter 13 Bankruptcy Trustee

As in a Chapter 7 bankruptcy case, a debtor who has filed for Chapter 13 bankruptcy must attend the meeting of creditors. The Chapter 13 Trustee will ask the debtor to answer questions under oath about assets and liabilities.

The Chapter 13 Bankruptcy Trustee is not the Bankruptcy Judge. He or she is the person appointed to act as a neutral third party in reviewing the debtor’s Chapter 13 bankruptcy case and administering the assets. The trustee may file an objection to the debtor’s repayment plan for various reasons. These objections may hinder the confirmation of the debtor’s repayment plan.

§ 341(a) Meeting of Creditors Under Chapter 13 Bankruptcy

The meeting of creditors, also known as the § 341 Meeting, allows the creditors a fair opportunity to question the Chapter 13 debtor. The creditors are not obliged to attend this meeting, and they seldom appear due to various reasons. The Chapter 13 debtor, however, must appear at the meeting. The Chapter 13 Bankruptcy Trustee will ask the debtor questions under oath about assets and liabilities.

Confirmation of Chapter 13 Repayment Plan

After the Chapter 13 debtor has attended the §341 meeting of creditors, the next important event is the confirmation hearing. In Colorado, the debtor is not required to attend the confirmation hearing if his or her attorney does.

During the confirmation hearing, a bankruptcy judge is assigned to review each Chapter 13 bankruptcy case filed and the circumstances that led to the debtor’s filing of bankruptcy. In cases where an objection to confirmation has been filed, the objecting Chapter 13 Bankruptcy Trustee or creditor, or its attorney, would attend to make their arguments. The bankruptcy judge considers the arguments from all sides and then either confirms the repayment plan, denies confirmation of the plan, or determines that an evidentiary hearing on certain matters of dispute, such as objections regarding disposable income, payment, property valuation, or bad faith, is necessary.

The confirmation hearing is very important in Chapter 13 bankruptcy. Our bankruptcy attorneys will work with you side by side to propose a manageable repayment plan to protect your interest. We will analyze your income and expenses in order to make sure the proposed repayment plan is reasonable, feasible for you and your family, and non-frivolous.

Discharge Under Chapter 13 Bankruptcy

In most cases the Chapter 13 bankruptcy proceedings must run at least 3 years (36 months) in order for the debtor to receive a discharge of unsecured debts. In very few cases the Chapter 13 Bankruptcy plan would be allowed to run less than 3 years if the debtor is able to pay his or her debts back in full over the duration of the Chapter 13 Bankruptcy payment plan in what is known as a “100% plan.”

Additional Bankruptcy Information

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