The Chapter 13 bankruptcy process is complex, and simple mistakes can derail your case. An American Bankruptcy Institute study spanning seven years revealed that just 2.3% of Chapter 13 cases filed without an attorney were successfully completed. If you’re considering filing Chapter 13 bankruptcy, your first step should be to consult an experienced bankruptcy lawyer.

Cohen & Cohen, P.C., our attorneys have decades of experience with Colorado bankruptcy cases and bankruptcy litigation. We also share a commitment to helping people who are burdened by unmanageable debt find the right solutions for them. You can schedule a free consultation right now by calling 303.933.4529 or filling out our contact form.

How Does Chapter 13 Bankruptcy Help?

Chapter 13 bankruptcy can stop mortgage foreclosure, wage garnishment, vehicle repossession and other collection action. A Chapter 13 plan gives you a chance to catch up past-due balances over time without creditor harassment, risk of losing your property, or mounting late fees.

Why Would I File Chapter 13 Instead of Chapter 7?

Chapter 7 bankruptcy is far more common than Chapter 13. Many people choose Chapter 7 because it is quicker and there is no repayment plan. Most unsecured debt can be discharged in Chapter 7. But, there are many reasons a bankruptcy filer might choose Chapter 13, including:

• Having too much income to qualify for Chapter 7
• Having non-exempt assets they want to keep
• Wanting to use bankruptcy to resolve secured debt like a delinquent mortgage loan (i.e., saving a house from foreclosure)
• Wanting to resolve tax debt that is not dischargeable in a Chapter 7 case
• Chapter 13 wipes out more types of debt than a chapter 7 such as property divisions from a divorce, more tax related debt, and willful injuries

The best way to find out which type of bankruptcy best suits your needs is to talk to an experienced Colorado bankruptcy attorney.

How Does Chapter 13 Bankruptcy Work?

Every bankruptcy case is different, but the core steps are the same for every Chapter 13 case.

Before you file any personal bankruptcy case, you must complete a credit counseling session with a Department of Justice (DOJ) approved agency. This typically takes about 90 minutes and can usually be completed online, but is a critical step. If you don’t file a certificate of completion with your bankruptcy case, the case will be dismissed.

Filing Chapter 13 Bankruptcy

Like a Chapter 7 case, a Chapter 13 case starts with the filing of a bankruptcy petition and schedules. The schedules include detailed information about your debts, your assets, your income and your expenses. You’ll also serve notice on all of your creditors.

In most cases, an automatic stay will take effect as soon as you file. The stay is a court order that prohibits your creditors from taking any action to collect on your debts for as long as the order is in effect. This order stops creditors from suing you, garnishing your wages, repossessing your vehicle, or even demanding payment while the bankruptcy case is pending.

The big difference between Chapter 7 and Chapter 13 is that a Chapter 13 bankruptcy reorganizes debt. In addition to the petition and schedules, you and your bankruptcy attorney will prepare a proposed Chapter 13 plan. In most cases, this means you will be expected to commit whatever disposable income is left after covering your allowed expenses each month.

You’ll need to start making plan payments in the first month, even though the plan won’t yet be approved.

The Meeting of Creditors

A few weeks after you file Chapter 13, you’ll be required to attend a meeting of creditors, also known as a 341 meeting. The term is a little misleading. Creditors have a right to appear at the meeting and ask questions, but they usually don’t. In most cases, the meeting will just be you, your bankruptcy lawyer, and the trustee who has been appointed to your case.

The trustee will swear you in and ask you questions under oath. Most of the questions are about verifying your income and other information in your petition and schedules. They’ll also ask questions to make sure you’ve read the documents you signed and that your attorney has explained bankruptcy to you.

When you hire us to represent you in a Chapter 13 case, we’ll walk you through what to expect and what documents you’ll need for the 341 meeting. Most are painless and last less than 15 minutes.

The Chapter 13 Plan

A Chapter 13 repayment plan allows you to roll up your past-due balances with different creditors into one monthly payment to the bankruptcy trustee. Through the plan, you can slowly pay off those past-due balances without accruing late fees or facing collection action..

To get a Chapter 13 plan approved, you must show that you have sufficient income to make monthly plan payments while also making current payments. For example, if you are behind on your mortgage, the past due balance will be rolled into your Chapter 13 plan and paid off over time. But, you’ll still have to make your current mortgage payments as they come due.

How Does a Chapter 13 Repayment Plan Get Approved?

The bankruptcy filer and their attorney put together a proposed plan. Then, the bankruptcy trustee and creditors have a chance to review the plan and make objections.

If there are no objections and the plan meets legal requirements and appears realistic, the court will typically approve the plan. If the trustee or a creditor objects, there are two ways to move forward: you can try to reach an agreement with the objecting party and submit a modified plan, or you can go to a contested hearing. At the hearing, the judge will hear arguments and then decide whether or not to approve the plan.

If your initial plan is not approved, you will have the opportunity to work with your attorney to come up with a new plan and try again.

What Happens Once a Chapter 13 Plan is Approved?

If the court approves your plan, you will make monthly payments to the Chapter 13 trustee for three to five years. The trustee will distribute those payments to creditors as set forth in your plan. When you successfully complete your Chapter 13 plan, remaining unsecured debt may be discharged.

It’s very important that you fully understand what you are required to do under your Chapter 13 plan. If you don’t make your payments on time or don’t follow the court’s orders, your case could be dismissed. If that happens, the door immediately opens for creditors to pursue lawsuits and other collection actions.

If something changes during your Chapter 13 bankruptcy case, you must contact your bankruptcy lawyer right away. For example, if you lose your job or are hospitalized and can’t make your payment, you may have options. But it’s your responsibility to be proactive and address those issues before you fall behind.

Is Chapter 13 Bankruptcy the Answer for You?

If you’re struggling with debt, you should be educating yourself about your options right now. Too many people delay for years, hoping things will get better. But, that rarely happens without a plan. Instead, many people throw away thousands or tens of thousands of dollars on interest and late fees, only to eventually file for bankruptcy.

We know financial problems are stressful, and that it can be difficult to sort out your options. That’s why we offer a free debt evaluation to people throughout the state of Colorado. Call us today to learn more.