Benefits of Chapter 13 bankruptcy for “Higher Income” Bankruptcy Filers

By: David M. Serafin

Posted: July 29, 2010

As an Arvada debt settlement lawyer, I typically meet with numerous clients with $100,000+ incomes who wonder if bankruptcy will really help them considering the stricter new bankruptcy laws.  The mortgage payment may be too high and/or they may have high credit card debt while paying 20% - 30%+ interest.  Or they may have failing real estate investments.

If, in the eyes of the Bankruptcy Code and the Colorado laws, your income (when compared to your family size) is too high, you will almost certainly be required to pay back a portion of unsecured debt to creditors through chapter 13.  Depending on the circumstances, some clients pay back “pennies on the dollar” while others are required to pay back up to 100% of the unsecured debt.

You may ask why a client would file for chapter 13 bankruptcy if required to pay back 100% to unsecured creditors.  The answer is that chapter 13 (on the exact date of filing) immediately stops any further accumulation of interest, penalties, late fees, finance charges, etc. charged by unsecured creditors which would otherwise continue to compound (on a daily basis) absent a bankruptcy filing.  And this same strategy of filing a chapter 13 in Colorado simultaneously serves to limit the collection powers of the IRS and Colorado Department of Revenue regarding income or other tax liabilities due.  

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