Should I Choose Chapter 7 or Chapter 13? Bankruptcy in Centennial and Littleton

Should you choose Chapter 7 or Chapter 13 bankruptcy in Colorado? Read more in our blog.

“Should I choose Chapter 7 or Chapter 13 bankruptcy?” Clients often ask us the difference between Chapter 7 and Chapter 13, and which is better for them.  The answer is, as in most things in bankruptcy: It depends on your individual circumstances and goals.  There is no “one size fits all” approach to bankruptcy, and that is why you should consult with experienced bankruptcy counsel when contemplating your options.

Chapter 7 Bankruptcy in Centennial and Littleton

First of all, Chapter 7 is usually considered the best option for most debtors and for that reason it is the “default” option.  There are a couple of reasons for this.  First, it is quick; the process usually takes only about 90 days.  Second, debtors don’t have to make any payments on their debts.  Instead, they surrender their non-exempt assets, and in about 90% of the cases all or most of the debtor’s assets are exempt, which means the debtor pays nothing.  The debtor then receives a discharge and moves on with their life.  These features make Chapter 7 the most attractive option for many debtors.

Chapter 13 Bankruptcy in Centennial and Littleton

Then why would anyone ever file Chapter 13?  There are a few reasons, including:

1.  The debtor may not be eligible for Chapter 7.  There could be a couple of reasons for this.  The most common reason is that the debtor makes too much money.  If the debtor’s income exceeds the median income in Colorado, he is not eligible for Chapter 7 and must file a Chapter 13.  Also, if the debtor receives a Chapter 7 discharge, he is not eligible to file another Chapter 7 case for 8 years. This means that Chapter 13 is his only option if he finds himself in financial trouble again.

2.  The Chapter 13 discharge is broader.  Certain kinds of debts that cannot be discharged in Chapter 7 can be discharged in Chapter 13.  For example, a debt incurred to pay a non-dischargeable tax debt (i.e., borrowing money to pay your taxes) cannot be discharged in Chapter 7, but it can be discharged in Chapter 13.  If the debtor’s goal is to obtain a discharge of this kind of debt, Chapter 13 is his only option.

3.  You may need to save the house.  In Chapter 7 the debtor must be current on all of his secured debts (usually the mortgage and car payments) in order to keep the asset.  Not so in Chapter 13.  The debtor can include “catch up” payments in his Chapter 13 plan. And, so long as he keeps the secured debt current on a going forward basis, he can keep the asset.

4.  Strip a second mortgage.  In certain situations where a second mortgage is not secured by any equity in the house, the debtor can strip the mortgage off an emerge from the Chapter 13 case with only one mortgage encumbering his house instead of two.

Your circumstances and goals will vary.  Check with experienced bankruptcy counsel when considering any kind of bankruptcy option, whether it be chapter 7 or chapter 13.

We hope you we have been able to answer your question: “Should I choose Chapter 7 or Chapter 13 bankruptcy?” It is important to have a loyal ally on your side as you decide the best way to resolve your financial issues and get a new start. Barry Arrington has proven many times that he can successfully overcome the difficulties of filing a Chapter 7 or Chapter 13 Bankruptcy. Contact an experienced bankruptcy lawyer at 303-205-7870, or submit the “Get Help Now” form for answers to more specific questions.

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