Bankruptcy isn’t for everyone, and it is a complex set of federal laws and rules that can be very confusing. The following section is an overview and should not be considered legal advice. Your first step should be to consult with a reputable bankruptcy attorney. They are equipped to determine the best course of action for you. The Hightower Team recommends two bankruptcy attorneys listed on our website.

What Is Bankruptcy?

Bankruptcy is a set of federal laws and rules designed to help consumers and businesses who are overwhelmed with debt. This is a legal way to negotiate debts and work out a payment plan under the supervision of the court. In bankruptcy, the person, corporation, or partnership that owes money is called the debtor. Bankruptcy law gives a debtor protection and benefits not available outside of bankruptcy. A common bankruptcy protection requires creditors to stop those relentless calls attempting to collect a debt, unless the calls are authorized by the bankruptcy court.

Liquidation versus Reorganization

The following is a brief outline of the two bankruptcy categories: liquidation and reorganization.

Liquidation:

Chapter 7 bankruptcy is considered liquidation. When filing for Chapter 7 bankruptcy, a debtor must fully disclose all assets, liabilities, and other information, and must also surrender all non-exempt property for liquidation and distribution to creditors. In the vast majority of cases, debtors filing bankruptcy have no assets, so Chapter 7 gives that person a relatively quick fresh start. Generally speaking, Chapter 7 bankruptcy is available to an individual earning less than $48,000 per year and a couple earning less than $65,000. One of the main purposes of bankruptcy is to give those who are hopelessly burdened with debt a fresh start by discharging debt obligations.

Reorganization:

Chapters 11, 12, and 13 bankruptcies are considered reorganizations. When filing for chapter 11, 12, or 13, a debtor must fully disclose all assets, liabilities, and other information. They must also formulate a plan to provide creditors at least as much as they would receive if the assets were liquidated. This payment plan typically lasts 36-60 months and the debtor must be able to meet these financial obligations.

Deciding Between Bankruptcy Chapter 7 and Chapter 13

In most cases, Chapter 13 bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also a great option for individuals who have predictable income and make enough money to pay their monthly expenses with money remaining to pay off debts.

The vast majority of bankruptcy cases are Chapter 7 liquidation. However, there are many reasons why individuals choose Chapter 13 reorganization. Generally speaking, individuals are a good candidate for Chapter 13 if they are in the following situations:

• Debtor is currently behind on a mortgage or auto loan and wishes to make up missed payments over time and reinstate the original agreement. Making up missed payments is only possible in Chapter 13.
• Help is needed to repay debts now, but the option to file Chapter 7 bankruptcy must be left open for the future. This is necessary only if a debtor cannot stop incurring new debt obligations.
• If valuable non-exempt property exists, Chapter 13 is the best option. When filing Chapter 7, all non-exempt property must be liquidated. The only property that can be held during a Chapter 7 must be exempt. Some Colorado exemptions are listed on .

General rules for filing Chapter 13 bankruptcy:

• The debtor received a discharge under Chapter 7, 11, or 12 more than four years ago, or
• If a majority of the debt consists of federal taxes, this determines the type of bankruptcy.
• A co-borrower exists on a personal debt that you wish to protect. Filing Chapter 7 bankruptcy will cause the creditor to go after the co-borrower for payment. Under Chapter 13, the creditor will leave the co-borrower alone as long as the payments are maintained.

Consult an attorney about which chapter to choose. Under the current bankruptcy code, legal advice is important.