Bankruptcy isn’t the end of the world. Do not consider it to be the final destination of your path to financial ruin. Instead, it is a track leading to financial recovery, the only option left when paying debts seems beyond your control.

Sometimes known as the Wage Earner’s Bankruptcy, Chapter 13 offers hope and the closest thing to a soft landing. It allows debtors with enough income who can’t qualify for Chapter 7, to repay their debts in contrast to liquidation. This bankruptcy is perfect for those whose biggest issue is creditors’ demands for immediate payment and not lack of income.  

What is Chapter 13?

Under Colorado Bankruptcy Laws, Chapter 13 offers three to five years to resolve the debts while applying their income to the reduction of debt. It allows debtors to eradicate unsecured debts while curing all your arrearages on your mortgages, taxes, car loan, and domestic support. Foreclosures are immediately stopped after filing this bankruptcy.

Moreover, Chapter 13 helps you with lien stripping that is removing your second mortgage lien from your home. Besides, it also reduces the principal balance of your car loan, minimizing it to the value of the vehicle. This is known as “cramdown”.

How does it work?

In this case, the petitioner submits a repayment plan that protects the assets against foreclosures or repossession and typically requests forgiveness of other debts. Chapter 13 of the bankruptcy code applies mostly to businesses.

Filing petition under Chapter 13, suspends all the current foreclosure proceedings immediately and payment of any other debts you owe. This buys you time while the court ponders over your plan. Remember it does not eliminate the debt.

What is the Chapter 13 process?

It is preferred to hire a bankruptcy attorney to help you file the petition and brief you about the proceedings. You need to provide all the relevant information related to your creditors, claim, debt, tax information and whatever your attorney asks to help you with your bankruptcy process.

Anyone seeking bankruptcy protection must take credit counseling within 180 days of the filing of the petition from an approved agency. All new mortgage payments must be made on time from the time of filing the petition. The debtor does not have any direct contact with the creditors under Chapter 13. You give the payments to the trustee or a mediator of the court who further distributes the payments to the creditors.

Keep in mind that any failure to comply with the terms, make payments on time could land you in trouble resulting in your case being dismissed.

Who all qualify for Chapter 13?

Any individual who can show means to pay the debts is eligible to file the petition. You must disclose your source of income and submit all the required information to the court within 2 weeks of filing the petition. Income includes the money coming from various sources such as personal income, Social Security payments, royalties, rent, proceeds from selling property and unemployment compensation.

Moreover, you are also required to submit the documents proving that you have filed federal and state tax returns in the past four years. Failing which, your case might be delayed until you pay, or it will be surely dismissed in case you fail to produce the transcripts of your return in the court.

How is life after Chapter 13 bankruptcy?

Once your reorganization plan is approved by the Bankruptcy Court, it is completely up to you to make the budget plan work. If you are unable to stand by the agreed-upon payments, then the matter will again be brought to the Court for review and you may also end up selling your property to pay the debts.

A Chapter 13 bankruptcy will stay listed on your credit reports for approximately seven years. You may find it difficult to get any additional credit in these years. However, this a small price you need to pay to get rid of all the harassing collection attempts made by the creditors. It is a strong tool to clear your debts and gives you a breather from the creditors.


Colorado bankruptcy laws are complicated to deal with. It is wise to hire a professional and experienced attorney who can help you with the repayment plan. Bankruptcy is a lifeline for the debtors giving them a new financial beginning.