Contrary to Many Beliefs, A Chapter 13 Bankruptcy Filing Has Many Benefits Over A Chapter 7
The following is a good guide to consider when considering whether filing for Chapter 13 Bankruptcy or Chapter 7 Bankruptcy, the guide will help you determine which is the better option for you.
Contrary to Many Beliefs, A Chapter 13 Bankruptcy Filing Has Many Benefits Over A Chapter 7 Bankruptcy Author: Robert Palmer Having worked under the old bankruptcy laws and the new bankruptcy laws, many of our clients that come into our office have many misconceptions and negative stereotypes about a Chapter 13 filing. Contrary to these beliefs, filing a Chapter 13 bankruptcy has many advantages over a Chapter 7 bankruptcy under the new bankruptcy law. Specifically in Colorado, a Chapter 13 will allow you to do the following that a Chapter 7 will not: Strip off Your Second Mortgage: You can get rid of your second mortgage or your Home Equity Line of Credit (HELOC) by filing bankruptcy if your real property is worth less that what is owed on the first mortgage. This means any second mortgages or HELOC?s are unsecured and can be discharged in a Chapter 13. This is not the case in a chapter 7 bankruptcy. In today?s real estate market, this is fairly commonplace. By getting rid of second and third mortgages, bankruptcy can allow you to keep your house by making smaller payments on the house in the future. You can modify your Chapter 13 plan at anytime: You retain the ability to modify the plan as necessary to abandon secured collateral and reduce the plan payments if appropriate. You do not have to pay back anything to unsecured creditors: You can now do a Chapter 13 with a ?0? percent pay-back to the unsecured creditors in some circumstances. As a result, the Chapter 13 plan can be used to pay the Colorado Chapter 13 Trustee, the legal fees and the secured debts for the property the debtor really wants to keep. This is the same that you would probably spend in a Chapter 7 bankruptcy and is a great option when a Chapter 7 is too expensive. A Chapter 13 can be a payment plan to your creditors. Save House or Car when you are behind on Payments: You can cure mortgage or car arrears in a Chapter 13 plan and bring yourself current during the next 36-60 months. In most cases, you need to be current on any secured property in a Chapter 7 or you can lose it in a Chapter 7 bankruptcy filing. Longer time to Reorganize your Affairs: The automatic stay in Chapter 13 is of longer duration than the Chapter 7 stay and provides you with a greater opportunity to reorganize your affairs and decide on what you want to keep and give back to creditors. Keep Assets that are not exempt in a Chapter 7 Bankruptcy: If you want to keep a car, boat or house that is not exempt under Colorado Bankruptcy Law, then you can file a Colorado Chapter 13 bankruptcy and avoid all of the Chapter 7 problems with the Colorado Chapter 7 Trustee. The Chapter 13 Trustee v. Chapter 7 Trustee: You will deal with a Colorado Chapter 13 Trustee who is notoriously understaffed and not a Colorado Chapter 7 Trustee who gets paid by the amount of non-exempt assets that are located in your case. Thus, historically, there is less scrutiny in a Chapter 13 bankruptcy filing because you are doing what Congress wants you to do?file a Chapter 13 rather than a Chapter 7. You can Convert your Chapter 13 to a Chapter 7 Bankruptcy: In most cases, you can convert a Chapter 13 case to Chapter 7 at anytime and receive your discharge. Thus, if something unexpected happens, you can always convert. You do not need to sign a Reaffirmation Agreement: Because your secured property will be provided for in the Chapter 13, you do not need to sign a reaffirmation agreement. Reaffirmation agreements are only used in a Chapter 7 bankruptcy and are discouraged by most attorneys and Courts. Penalties associated with Willful and Malicious Injury: Willful and malicious injury to property is not discharged in a Chapter 7 bankruptcy but is subject to discharge in a Chapter 13 bankruptcy. Willful and malicious injury to a person is not dischargeable in a 13, but only if the state court action has gone to judgment. Repay Child Support: Like taxes, Domestic Support Obligations can be provided for and brought current in the Chapter 13 bankruptcy. Some Chapter 7 Trustees will pursue such claims as a source of fees and commissions. Repay Back Taxes: Older taxes that were timely filed are dischargeable in a Chapter 13 bankruptcy. The Colorado Chapter 13 also provides the debtor with the ability to repay non-dischargeable taxes. Once you file your bankruptcy with the bankruptcy court, these taxes cannot increase and are just chiseled down over the course of your bankruptcy. This does not occur in a Chapter7 bankruptcy. Divorce Settlement Obligations are Dischargeable: Non-Domestic Support Obligations are still dischargeable in a 13. Under the new law, they are not dischargeable under a Chapter 7 Bankruptcy. Thus, anything in your separation agreement that does not relate to alimony or child support are dischargeable only in a Chapter 13 bankruptcy. As you can see, there are many benefits of a Chapter 13. It is a frustrating task as a bankruptcy attorney trying to decode all the negative stereotypes that are out there concerning Chapter 13 bankruptcies. In our office, we actually prefer to file a Chapter 13 for our clients because we know in many circumstances, the benefits outweigh the negatives. Hopefully, this brief overview will help alleviate some of society?s hesitation with this section of the bankruptcy code. -- Michael Suchoparek is a Managing Partner of Weselis & Suchoparek, a Bankruptcy Law firm located in Downtown Denver, Colorado. 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