If you are one of the many Colorado residents whose credit card and other debt has accumulated to the point where you do not earn enough to make all your payments and still eat and keep a roof over your head, you may be considering bankruptcy as a last resort. While you probably have heard about both Chapter 7 and Chapter 13 bankruptcies, you may be unclear as to exactly what they are and which one is right for you.
Chapter 7 bankruptcies account for nearly 71 percent of the bankruptcies filed. Not only are they the simplest type of bankruptcy, they give you a fresh financial start and do so in a reasonably short period of time. However, a Chapter 7 bankruptcy has income standards you must meet in order to file one. You should contact an experienced bankruptcy attorney who can explain Colorado’s Chapter 7 income requirements and answer all your other questions as well.
Probably the biggest advantage of a Chapter 7 bankruptcy is that it discharges your credit card debt and virtually all of your other consumer debt as well. It also features an automatic stay whereby your creditors must stop harassing you by phone, text, email or snail mail in an attempt to collect the debts you owe them. In addition, a good deal of what you own, such as your equity value in your home, is exempt property, meaning that you will not lose it during or after your bankruptcy.
One of the biggest disadvantages of a Chapter 7 bankruptcy, however, is that you likely will not be able to save your home from foreclosure. If your mortgage company has already started foreclosure proceedings against you, the Chapter 7 automatic stay will stop those proceedings for a while, but if you cannot get caught up on your mortgage payments during the pendency of your bankruptcy, your mortgage lender can restart foreclosure proceedings after it ends.
A Chapter 13 bankruptcy does not seek to discharge your debts, but rather gives you time to pay them off, often at reduced rates and via reduced monthly payments. A Chapter 13 is a reorganization: You come up with a three- to five-year debt repayment plan that the bankruptcy trustee helps you devise and which the judge and your creditors approve.
Often your creditors are more than willing to work with you since it is to their advantage, as well as yours, that you become financially solvent again. Certain creditors may be willing to reduce the balance of the debt you owe them, particularly your mortgage and/or car lender if you are “upside down” where the value of your home or car is less than the remaining balance of your loan.
Once your plan goes into effect, all of your creditors must stop harassing you for debt repayment, just like in a Chapter 7 bankruptcy. Given the longer period during which you remain in Chapter 13 bankruptcy, you have the possibility of catching up on your house payments and saving your home from foreclosure.
Before you make the decision to file bankruptcy, you definitely should consult with a knowledgeable bankruptcy attorney. Only (s)he can properly advise you as to which type, Chapter 7 or Chapter 13, is best for you under your particular circumstances. In addition, (s)he can guide you through the entire bankruptcy process.