Five years ago, you purchased your dream home. Maybe it was in Denver, Aurora, Lakewood, Golden, Westminster, Arvada, Centennial, or Commerce City. Three bedrooms, two bathrooms, a basement, and a yard for your kids and dog. You always thought it would be your forever home. Then you lost your job and got behind on payments. Luckily, you were able to secure a new job. Everything seemed to be turning around. Then you heard a knock on your door and were served foreclosure paperwork. Your heart sunk. How could you save your home? There was no way you could pay back all of your missed payments immediately. There may be another way. Chapter 13 Bankruptcy can stop the foreclosure action in it tracks.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy allows individuals with regular income to develop a plan to repay all or part of their debts. Your qualified Colorado licensed attorney will submit a plan to the court to make regular monthly payment to creditors over three to five years. The monthly payments will be based upon your disposable income. Your disposable income is the amount of money you have remaining from your paycheck after paying you regular recurring bills like your mortgage, utilities, groceries, etc. These repayment plans will last from three to five years depending on your income compared to the income of similarly situated families in Colorado. Once you have completed the proposed Chapter 13 plan, many of your unsecured debts, even if they have not been fully repaid to the creditor, will be discharged.
How Does This Stop Foreclosure?
During the pendency of the Chapter 13 plan, the law forbids creditors from starting or continuing collection efforts. Luckily, foreclosure is considered a collection effort. A Chapter 13 plan will immediately put a stop to the foreclosure activity. Although the foreclosure is halted, you will still have obligations to your mortgage company to keep your home.
What Are My Obligations?
First, you will have to continue, or begin, to make your regular mortgage payments. Although the bankruptcy will halt the foreclosure based on your past missed payments, it will not stop the mortgage company from taking additional actions should you fall behind again. Second, you will include your mortgage payment arrearages in the Chapter 13 plan. The court allows you to pay back what you owe the mortgage company over that three to five year period that you are making your regular monthly mortgage payments. During the Chapter 13 repayment period, you get to remain in your home.
Are There Any Catches?
The most important requirement to file a Chapter 13 bankruptcy is that you have a regular source of income with some disposable income. Without an income, you will not be able to make regular payments and your case will be dismissed. The second caveat is that you have to pay back your creditors as much as they would have been repaid if you had filed a Chapter 7 bankruptcy.
What Does That Mean?
In a Chapter 7 bankruptcy, your debts are discharged. However, the court may force you to sell certain possessions to pay back your creditors. The court allows you a certain amount of equity in your possessions that you get to keep, called exemptions, even after your debts are discharged. In Colorado, you are able to keep $75,000 of home equity if you are under 65 and $105,000 of home equity if you are over 65.
So How Does This Affect the Chapter 13?
Let’s say you have $100,000 of equity in your home. If you filed a Chapter 7, the court would sell your home to pay off your creditors. The exemption would allow you to keep $75,000 from the sale of your home and the court would use the remaining $25,000 to pay off your creditors. That means that if you file a Chapter 13 bankruptcy, you would need to pay at least $25,000 to your creditors over the 36-60 months that you are following the Chapter 13 plan. Your minimum monthly payments would be at least $417 per month.
Should I File Chapter 13 Bankruptcy?
In order to determine if you need to file a Chapter 13 bankruptcy, you should contact a qualified Colorado bankruptcy attorney. There are many bankruptcy attorneys throughout the Denver Metro area, including Denver, Aurora, Arvada, Lakeland, Centennial, Castle Rock, Parker, Westminster, Brighton, and Broomfield, who offer free consultations. These experienced bankruptcy attorneys will be able to individually assess your situation and let you know whether a Chapter 13 bankruptcy is right for you.