Bankruptcy
Chapter 13
Chapter 13 is a court-supervised repayment plan. You commit your disposable income, as determined by the Chapter 13 Means Test, to the repayment of creditors for three to five years; a trustee distributes the payments to creditors in the order the Bankruptcy Code sets; and the remaining eligible unsecured balance is discharged at the end.
It is the more complex case, and it can do things a Chapter 7 cannot. If you are behind on a mortgage and want to keep your home, Chapter 13 lets you catch up on the missed payments over the life of the plan while the automatic stay holds off foreclosure. For many families, that is the reason it exists. It can also help to cure past-due taxes, pay the fair market value of a vehicle, and cure arrears on child support or maintenance.
- Plan length
- Three to five years
- Payment
- One monthly payment to the trustee
- Best known for
- Curing mortgage arrears and keeping the house
- At the end
- Remaining eligible unsecured debt discharged
Eligibility
Who it fits
It usually fits one of four situations. Your income is above the median and you do not pass the means test. You have equity beyond what the exemptions protect and want to keep the asset. You are behind on a mortgage or a car and want to catch up rather than give it up. Or you have debt that Chapter 7 would not address and Chapter 13 handles better.
If your household income looks healthy on paper while your debt payments quietly consume it, this is the chapter you are most likely to use. That is not a worse outcome, and it is nothing to be embarrassed about. It is a different tool, and it can work very well.
Honestly
What a Chapter 13 plan is really like
I want to be honest with you about this. Five years in a Chapter 13 is a long time to live on a budget the court has approved. Your disposable income goes to the plan; a raise can change your payment, and taking on new credit during the case requires permission. If your circumstances change significantly, the plan can be modified.
The other side is that, for three to five years, the pressure is truly lifted. You make one payment to one trustee, on a schedule you know in advance, and the automatic stay protects you the whole time. Several clients have told me that the peace of mind was worth even more to them than the discharge at the end.
Plans often fail. I believe this happens for two reasons: first, the payment was set too optimistically at the start. I would much rather propose a plan you can actually sustain than an ambitious one that becomes a burden in year two. Second, life happens. Someone loses their job. The water heater goes out. Your child needs braces. I see plans fail when the attorney walks away after the case is confirmed. That doesn't happen here. I'm with you from the very beginning to the very end of your plan, and will do whatever I can to help you make it work.
The role
The trustee
You will hear a lot about the trustee, so it helps to understand the role. The Chapter 13 trustee administers the case, receives and distributes your payments, and objects when a plan does not meet the requirements of the Bankruptcy Code. The trustee is not your advocate, and you should not have direct contact with their office. You have representation; let us help!
A carefully prepared plan draws fewer objections. Much of the trouble I see in other cases comes from a plan that was filed before the numbers were solid, which is why I take the time to get them right.
Questions
The questions people ask me most
Can I keep the house if I am behind?
Yes, and this is one of the biggest benefits Chapter 13 offers. Filing stops a foreclosure, and the plan lets you catch up on the missed payments over three to five years while you keep up with the regular payments in the future. To be successful, you will need to be able to afford the regular payment and be able to make a catch-up payment, but it is the most reliable way to keep a home you have fallen behind on.
How is my payment calculated?
Broadly, it is the larger of what your disposable income supports and what your unsecured creditors would have received in a Chapter 7. There is more to it, but that is the basic shape. It is a calculation rather than a negotiation, so the care goes into getting the numbers right. This is why I ask for detailed documentation of actual out-of-pocket expenses.
What if I lose my job during the plan?
Plans can be modified to lower the payment, payments can sometimes be paused temporarily, and in some circumstances, a case can be converted to a Chapter 7, or a hardship discharge can be requested. Please do not stop paying and wait to see what happens. Tell me as soon as you can, and we will work through it together.
Can I get credit during the case?
For anything significant, you need court approval. It is a routine process, and people buy replacement cars during Chapter 13 plans regularly. I do caution clients about getting new unsecured credit during the course of a Chapter 13 case. Payments on new debt are often difficult to incorporate into a Chapter 13 plan.
Read more
The long answers
Bankruptcy when you have a higher income: why it happens, and what Chapter 13 actually looks like
Why households earning $90,000 to $250,000 end up considering bankruptcy, how the means test really treats them, and what a five-year Chapter 13 plan involves.
12 minute read
The Colorado bankruptcy means test, explained
How the Chapter 7 means test works in Colorado: current monthly income, the state median by household size, allowed expenses, and why timing the filing matters.
11 minute read
Bankruptcy and divorce in Colorado: which comes first, and why it matters
Filing bankruptcy before, during or after a Colorado divorce changes what gets discharged, who pays joint debt, and how property is divided. How to sequence it.
11 minute read
In clients’ words
“We've came a long way from you hearing me cry on the phone. Facing a foreclosure in less then 2 weeks. You spoke hope, that I did not believe was possible.”
You do not have to figure this out alone.
From the first call, you will be treated with kindness and respect, and without judgment. You can call my office or book a Strategy Session yourself, and no one will pressure you.