Chapter 13 offers individuals a number of advantages over liquidation in a chapter 7 bankruptcy.
A chapter 13 allows an individual to protect property that might be lost in a chapter 7 bankruptcy. For example, the filing of a chapter 13 petition can stop a foreclosure or repossession and give a homeowner a way to get caught up on delinquent mortgage or vehicle payments through a chapter 13 plan over 3-5 years. All regular mortgage payments that come due during the chapter 13 plan must be paid on time.
A chapter 13 plan may also enable an individual to propose a payment schedule for certain claims, such as priority taxes, that cannot be discharged in a chapter 7.
A chapter 13 plan can also reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the plan. Doing this may lower the total amount paid on secured claims. For example, if a junior mortgage (even if a primary residence) is completely worthless, a chapter 13 debtor can "strip off" the lien by treating the claim as unsecured, completing the plan, and wiping out any unpaid balance of the junior mortgage when the chapter 13 discharge occurs at the end of the case.
Chapter 13 includes a co-debtor stay that may protect other individuals, such as co-signers, who are liable with the debtor on consumer debts.
A chapter 13 plan is like a debt consolidation. A chapter 13 debtor makes monthly payments to the chapter 13 trustee who then distributes payments to creditors in the order set forth in the plan. There is a minimal amount that must be paid through the plan to unsecured creditors based on a number of factors, including a debtor's ability to pay and payments required to give unsecured creditors what they would have received if a chapter 7 had been filed instead. In general, individuals have no direct contact with creditors while the chapter 13 is pending.
Since 1986, Denver bankruptcy attorney Robin Kert Hunt has been helping Colorado individuals, even those with small businesses, with debt relief under chapter 13 of the Bankruptcy Code. If bankruptcy assistance from my law firm sounds like what you want, call me. If I'm not available, leave a message, and I'll call you.
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