Choosing Chapter 7 Vs Chapter 13 in 2026

right away upon filing, through the automated stay. You lag on your home mortgage and wish to keep your homeYour income is above the Colorado median and you don't pass the Chapter 7 means testYou have non-exempt equity you wish to safeguard by paying its value into a plan instead of losing the assetYou have financial obligations that make it through Chapter 7 (particular taxes, some domestic support arrears) that you need structured time to payYou have actually submitted Chapter 7 too just recently to file once again (see timing rules below)The ways test under 11 U.S.C.

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Here's how it works in plain terms: The U.S. Trustee Program publishes average household income figures by home size, updated every April and November utilizing Census Bureau information. If your average month-to-month income over the prior six months, annualized, falls at or below Colorado's mean for your household size, you pass the methods test automatically and may file Chapter 7.

Lots of above-median filers still get approved for Chapter 7 after these reductions. or you may still have choices depending upon the type of debt you carry (the ways test just applies to filers whose financial obligations are mostly consumer financial obligations). Because the typical earnings figures and internal revenue service expenditure requirements change two times a year, the precise numbers that applied when a pal or relative filed might not use to your case today.

Chapter 13 isn't readily available to everyone regardless of earnings there are statutory financial obligation ceilings under 11 U.S.C. 109(e). As of the most recent inflation adjustment (reliable April 1, 2025, through March 31, 2028), the limits are separate for protected and unsecured debt, in the low 7 figures combined. There is active, bipartisan legislation pending in Congress that would raise and simplify these limitations into a single combined limit worth seeing if you're near the present ceiling, especially if a large home loan is what's pushing you over.

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This is generally the deciding element for Colorado filers. Colorado's exemption statutes safeguard a set amount of equity in your house, lorry, tools of trade, retirement accounts, and individual home. If your equity in a property exceeds the exemption, the trustee can offer it and pay you the exempt part however for the big majority of filers with average equity levels, everything is secured and absolutely nothing is sold.

This is frequently why higher-equity property owners or entrepreneur pick Chapter 13 even when they may technically pass the Chapter 7 implies test. 34 months to discharge35 years to dischargeNoYes, per court-approved planLower, one-timeLower, one-time (plus ongoing trustee fee)Frequently paid up front or shortly after filingFrequently paid through the plan over timeStays 10 years from filingStays 7 years from filingUnsecured debt with no significant assets at riskSaving a home, curing defaults, above-median earnings Chapter 13 Chapter 7 You generally should wait 8 years for another Chapter 7 discharge, however may certify for Chapter 13 quicker (timing guidelines are technical and case-specific) Chapter 13, to cure the default and keep the car Typically Chapter 13, though eligibility depends upon the "routine income" requirement Chapter 13's co-debtor stay offers defense Chapter 7 does notI invested years administering cases as the Trustee -seeing firsthand which choices held up and which ones backfired.

Submitting the incorrect chapter, or filing properly but with an avoidable error, can mean losing home you could have kept or paying years longer than required. Every monetary circumstance is various, and the "best" chapter depends on numbers and realities unique to your home. If you're weighing Chapter 7 vs.

Yes, most of the times you can convert your case from Chapter 13 to Chapter 7 if your scenarios change, based on specific restrictions and court approval. Not always. If you're existing on your home loan and your home equity is within Colorado's exemption limitations, you can typically keep your home in Chapter 7.

It depends on your household income compared to Colorado's existing mean figures for your home size, plus allowed expenditure deductions if you're above typical. Filing either Chapter 7 or Chapter 13 activates the automated stay, which right away stops most wage garnishments, collection calls, and claims.

Chapter 13 deals court-enforced defense that personal debt settlement does not offer, however it's a longer commitment. Personal bankruptcy law is fact-specific, and outcomes depend on your individual scenarios.