Chapter 13 Bankruptcy In Colorado May Be Your Best Option
Chapter 13 bankruptcy, as opposed to Chapter 7 bankruptcy, requires filers to repay a certain amount of their unsecured debt over a period of three to five years. Usually, whether someone is in a Chapter 13 plan for three years or five years can depend on factors such as their household income, whether they owe any “priority” debts such as taxes, or whether they are trying to bring a mortgage current. Typically, a filer will be in a Chapter 13 plan for the duration of his required plan period. If he wants to get out early, he’ll likely have to pay 100% of all of the claims filed by his unsecured creditors.
Of course, if he can pay off his unsecured creditors sooner than required, he could get out of Chapter 13 bankruptcy earlier than required by paying those unsecured creditors. But by drawing out his repayment of his unsecured debts for the full plan period, he can reduce the amount of his monthly payment, which may be helpful in meeting the rest of his financial obligations. The question becomes, should a Chapter 13 filer be allowed to repay his debts over 60 months, even if he could repay them sooner?
In In re: McGehan Judge Sidney Brooks of the Denver, Colorado bankruptcy court was faced with this very question. The Chapter 13 trustee had objected to the confirmation of Mr. McGehan’s plan, based on allegations of bad faith. In his proposed plan, McGehan was to pay only roughly 25% of his disposable income to his unsecured creditors. The trustee argued that Mr. McGehan could repay his unsecured debts much sooner than the 60 months his proposed plan called for, and that a 60 month plan put creditors at risk of not being repaid if Mr. McGehan’s financial condition were to change.
The issue before the court was whether Mr. McGehan proposed his plan in good faith when he proposed to pay in five years what he could pay in 15 months. After analyzing the facts through the spectrum of Section 1325 of the Bankruptcy Code, Judge Brooks decided that Mr. McGehan’s plan has been proposed in good faith. Nothing in the Bankruptcy Code requires debtors to repay their debts sooner than five years if they don’t want to. Judge Brooks relies especially on Section 1325(b)(1), which states, “a court may confirm a plan over the objection of the trustee if the debtors pay all unsecured claims in full or the debtors commit all of their projected disposable income received during the applicable commitment period to pay unsecured creditors.” Here, Mr. McGehan proposed to pay all unsecured claims. Judge Brooks clarifies his decision, however, by stating that, “the amount of the Debtors’ payments cannot be the sole and exclusive basis for finding a lack of good faith.” It’s possible that, had there been any manipulation of his income or any other misrepresentation, Judge Brooks would have ruled otherwise.
You can find a copy of Judge Brooks’ opinion here.
The Chapter 13 bankruptcy process can be very involved and sometimes confusing. Our objective is to make sure you thoroughly understand the process and ensure you get the fresh financial start you need.
If you have questions about Chapter 13 bankruptcy, we hope you’ll come in for a free, no-obligation consultation with an experienced Chapter 13 bankruptcy lawyer. We’ll answer all of your questions so you can be sure Chapter 13 is your best option. If we don’t think it is, we’ll tell you. If we think you should consult with an attorney who has more experience with your specific financial situation, we’ll refer you.
You can make an appointment by calling 303.331.3403 or by using our online scheduling system.
Colorado Bankruptcy Law Group, LLC
We are Denver, Colorado bankruptcy lawyers. We help guide clients through the personal chapter 7 and chapter 13 bankruptcy process to make sure they get they financial fresh start they need.
3773 Cherry Creek Drive North, Suite 575