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What are the Main Differences between Chapter 7 and 13 Bankruptcy?

Both Chapter 7 and 13 bankruptcies strive for the same result: the debtor ends up having their debts discharged.  The primary differences between a Chapter 7 and 13 bankruptcies are (1) what happens to your property, (2) who qualifies, and (3) how long the bankruptcy takes to get to discharge.

What happens to your property?

A Chapter 7 can be described as a liquidation, while a Chapter 13 is a reorganization.

In a Chapter 7 bankruptcy, the debtor is required to sell/liquidate all non-exempt property to pay off the creditors.  Whatever property is exempt and/or left after paying off the creditors is kept by the debtor.  The list of exempt property is broad in Colorado and includes the following (but not limited to), all subject to their statutory amount limits:

  1. Clothing and jewelry;
  2. Household goods;
  3. Retirement accounts (not traditional savings accounts);
  4. Property used for the debtor’s gainful occupation;
  5. Motor vehicle;
  6. Primary home.

In a Chapter 13 bankruptcy, the debtor is allowed to pay off the creditors on a three-to-five-year payment plan while keeping all their property.  The payment plan will be based on your property, income, and ability to pay.  The payment plan requires monthly payments that the trustee will then distribute to the creditors.

Who qualifies?

To qualify for a Chapter 7 bankruptcy, the debtor must pass the Colorado means test by either (1) having an income below Colorado’s household median income (as set by the Census Bureau’s Median Family Income Data) or (2) showing their disposable monthly income is below a certain amount.

For those that do not pass the means test and have debts under the legal limits, they can file a Chapter 13 bankruptcy.  The current legal debt limits for a Chapter 13 filing are $465,275 of unsecured debts and $1,395,875 of secured debts.  These debt limits change every three years.

The means test has many legal nuances where the assistance of an experienced attorney is crucial.  For example, what qualifies as income, a household member, and/or an expense under the means test can all be difficult to determine.  An experienced attorney can help you properly run the means test to your individual situation such that you have the best chance to qualify under Chapter 7.

How long it takes to get to Discharge?

A Chapter 7 bankruptcy lasts on average four to five months to get to discharge.

A Chapter 13 bankruptcy takes three to five years to get to discharge.

Colorado Bankruptcy Attorney

Having an experienced attorney can be crucial to the case.  At Burnham Law we have successfully discharged our clients’ debts such that they were able to keep most, if not all their property.  This success comes by assuring our clients have (1) filed at the right time, (2) labeled and claimed all exempt property under the law, and (3) properly applied the Colorado means test.

The timing of when the debtor files is vitally important.  At Burnham Law, before a client files, we have gone through an extensive pre-filing preparation phase.

Claiming all the exempt property allowed under the law assures that the bankruptcy estate only includes property that lawfully must be included.  The laws surrounding exemptions is complex and an experienced attorney will know the nuances and case law.

Last, properly applying the Colorado means test will assure that you file under the proper Chapter.  The legal definitions within the means test are specialized and an experienced attorney can help you qualify for a Chapter 7 when you otherwise would not have known that you qualify.

The primary purpose of a bankruptcy is to provide a fresh financial start.  Burnham Law believes in second chances, and we want to help you eliminate your debt and stress.

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