Chapter 13 Bankruptcy: Is it the Right Move For You? Colorado Bankruptcy Lawyer Provides Insight

Filing for bankruptcy usually isn’t part of anyone’s life plan. But it’s not the financial death sentence you may have been led to believe. Bankruptcy might be your best option if you are struggling to pay your debt. 

There are several types of bankruptcy. The one that’s right for you depends on factors like your current income and what you hope to achieve from the filing. In this article, we’ll dive into what Chapter 13 bankruptcy has to offer and if you might qualify. 

Here are the Topics We’ll Cover

1. What is Chapter 13 Bankruptcy?
2. How Do I Know if Chapter 13 Bankruptcy is Right for Me?
3. Who Qualifies for Chapter 13 Bankruptcy?
4. 7 Advantages of Chapter 13 Bankruptcy
5. How to Avoid Chapter 13 Drawbacks
6. Which Assets Are Exempt in a Chapter 13 Bankruptcy?
7. Real-Life Chapter 13 Bankruptcy Stories
8. The Chapter 13 Bankruptcy Process
9. The Chapter 13 Bankruptcy Repayment Plan
10. What Does the Bankruptcy Trustee Do in a Chapter 13 Case?
11. What to Consider After Filing for Chapter 13 Bankruptcy
12. Alternatives to Chapter 13 Bankruptcy
13. Rebuilding Your Credit After Bankruptcy
14. Call a Chapter 13 Bankruptcy Attorney Today

What is Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a reorganization of debt. Unlike Chapter 7 bankruptcy where property can be sold off to pay your creditors, Chapter 13 lets you keep your property and repay your debts over three to five years.

This means you’ll develop a repayment plan, which you must stick to rigorously. If you do, you can discharge the rest of your debt and get the fresh start you need to rebuild your finances.

A Chapter 13 bankruptcy is a more involved process than a Chapter 7 filing. Filing a petition under Chapter 13 demands the expertise and strategic abilities of an experienced bankruptcy lawyer. 

The right attorney can save you thousands of dollars and is an investment well worth the expense. Your legal fees can be paid back over time like the debts included in the filing.

Now, let’s talk about the circumstances under which Chapter 13 may be appropriate for you.

How Do I Know if Chapter 13 Bankruptcy is Right for Me?

Chapter 13 bankruptcy is often the most viable option for individuals or families who fit one or more of these conditions:

• Make too much money to qualify for Chapter 7 bankruptcy
• Looming foreclosure or repossession of property you wish to keep
• Have sizable equity in a small business or other assets
• Owe taxes that cannot be discharged in bankruptcy
• Have filed for Chapter 7 bankruptcy within the past eight years

Who Qualifies for Chapter 13 Bankruptcy?

There are several factors that determine whether you will qualify for Chapter 13: debt amounts, income, and taxes. Let’s explore these in more detail. 

The Chapter 13 Debt Threshold

In 2022, President Joe Biden signed into law the Bankruptcy Threshold Adjustment and Technical Corrections Act, which modified some bankruptcy provisions, including Chapter 13. 

Under this act, the Chapter 13 debt threshold is $2,750,000. Both secured and unsecured debts apply to this single debt limit. This change is not forever, though. It is set to end on June 21, 2024. 

At that time, the Chapter 13 debt threshold could revert to separate limits for unsecured and secured debts. 

What’s the Difference Between Secured Debt and Unsecured Debt?

Secured debts require collateral to get the loan. Two of the most common secured debts are home mortgages and auto loans. If you fall behind on these loan payments, the creditors can seize your property to satisfy the debt. The IRS can also file a lien against your property if you don’t pay your income taxes. So tax liens are another form of secured debt. 

Unsecured debt is not backed by collateral. Credit card debt is the most common type of unsecured debt in the U.S. Other types of unsecured debt include: 

• student loans
• medical bills
• personal loans
• child support

You Must Have Disposable Income

Chapter 13 bankruptcy was once known as the “wage earner’s plan” because only people who earned a living from an employer qualified. This was to ensure that the individual filing Chapter 13 had a steady income to pay back their debt. 

Today, Chapter 13 can be an option for people who are self-employed or operate as a sole proprietor. 

The key, though, is to demonstrate you have the income to meet your monthly expenses and enough left over to apply to the debts included in your bankruptcy.

Your Taxes Must Be Up to Date

You are required to submit proof that you have filed state and federal tax returns for the past four years. If you can’t do this, your case may be delayed until you can.

Ultimately, your case will be dismissed if you do not provide transcripts of your tax returns.

Who Cannot File for Chapter 13?

You’re ineligible for Chapter 13 bankruptcy if:

• You have had a prior bankruptcy petition dismissed within the previous six months due to your willful failure to appear before the court or comply with court orders. 11 U.S. Code § 109(g)
• You voluntarily dismissed a previous bankruptcy petition after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S. Code § 362(d) and (e)
• You did not get the required credit counseling within the past six months from an agency approved by the U.S. Department of Justice. 11 U.S.C. §§ 109, 111 The court may make an exception in an emergency, or if the bankruptcy trustee has determined that there are not enough approved agencies to provide the required counseling.
  

7 Advantages of Chapter 13 Bankruptcy

When properly utilized, a Chapter 13 filing helps debtors avoid some of the least desirable consequences associated with bankruptcy.

Some advantages to filing under Chapter 13:

Keep Your House

It’s a scary feeling when you learn you could lose your home. Foreclosure is expensive, stressful, and it can have lasting effects on your credit and your financial future.

Chapter 13 can protect you from this. It can stop ongoing foreclosure proceedings and help you develop a plan to make up your missed mortgage payments over time.

Keep in mind you’ll still have to make your regular mortgage payments when they are due after your case is filed.

Keep Your Car

The last thing you need when you’re already behind on your bills is to lose your transportation. 

Chapter 13 prevents creditors from repossessing your car. (Chapter 7 bankruptcy only temporarily secures your vehicle. Creditors can still ask the court to allow repossession.)

Get Creditors Off Your Back

All collection actions are automatically stayed when you file Chapter 13. This means your creditors are required by law to stop the harassing phone calls, letters, and lawsuit threats.

Chapter 13 bankruptcy consolidates your debt and allows you to make a single payment to the bankruptcy trustee assigned to your case. The trustee then distributes those payments to creditors.

As long as you’re under Chapter 13 protection, you won’t have direct contact with creditors. Once you have solidified your finances, creditors can resume debt collection attempts.

More Time and Flexibility

You wouldn’t be considering bankruptcy if your debt didn’t feel insurmountable. Chapter 13 will give you the time and flexibility you need to catch up on payments and get your finances on track. 

You may be able to reschedule your secured debts (other than a mortgage for your primary residence) and extend them over the life of your Chapter 13 plan. Doing this may even lower the payments.

Possibly Remove Second Mortgage

In certain circumstances, you can eliminate a second mortgage on your home by filing Chapter 13.

If you have two mortgages on your house, your first mortgage balance must exceed the value of your home before you can strip your second mortgage. 

If you have three mortgages, then you can get rid of both your second and third mortgages if your first mortgage is greater than the value of your house.

However, if your house is worth more than your first mortgage alone but not more than the combined balance of your first and second mortgages, then you can only strip your third mortgage.

Chapter 13 is More Attractive to Lenders

Future lenders may look more favorably upon a Chapter 13 bankruptcy filing than a Chapter 7. 

Completing a Chapter 13 bankruptcy plan demonstrates that you have reliably made payments for several years and have eliminated most, if not all, of your debt. This reassures the lender that you will be able to pay them back.

Release Otherwise Undischargeable Debts

There are some debts that are all but impossible to get rid of – except through a Chapter 13 bankruptcy. These include:

• debts for willful and malicious injury to property (not a person)
• debts incurred to pay nondischargeable tax obligations
• debts arising from property settlements in divorce or separation proceedings
  

11 U.S.C. § 1328(a)

How to Avoid Chapter 13 Drawbacks

For all its perks, Chapter 13 bankruptcy is not without its pitfalls. However, many of them are avoidable, especially when you have a legal team supporting you along the way. 

Let’s take a look at some of the common hurdles that we can help you avoid.

The Payment Plan Completion Rate

It’s hard to dispute statistics. We all look to stats to help us make informed decisions. And if you’ve done your own research, you may already know that only 33-50% of people who file Chapter 13 are successful — meaning they completed their repayment plans and got their discharge.

Why do so many people not complete their repayment plans? Well, for many reasons. One, is that a lot of life can happen during the three to five years you’re paying back your debt. You might: 

• have a child
• get married or divorced
• change jobs or get laid off
• take a pay cut

These types of events have the potential to derail a Chapter 13 payment plan.

My Clients’ Success Rates

I’m happy to report that my clients’ success rates are better than average. 

In 2017, I helped 53 clients file Chapter 13. Thirty-two of them completed their repayment period and received their discharge. That’s a 60% success rate. 

In 2018, I had 21 Chapter 13 clients. Of those, 16 got a discharge. That’s a 76% success rate! 

Here’s How We Achieved Success

I cannot take all the credit for my clients’ Chapter 13 successes. After all, they’re the ones sticking to the plan, making the payments, and probably making a lot of sacrifices along the way. 

But — I do make sure they are set up for success before they begin their repayment plans. 

A lot of prep work goes into reviewing their income budget and plan prior to us filing. 

I really delve into my client’s finances and financial position. In most cases I will not file a case if I don’t have supporting information to give me a good idea they can fund the plan and be successful.

Ch. 13 Can be More Expensive

Many bankruptcy trustees will tell you they have never seen a successful self-filed Chapter 13 bankruptcy. In fact, in my experience, many judges will not even hear your Chapter 13 case if you don’t have an attorney.

Depending on where you live and who you work with, a Chapter 13 attorney can cost you $3,200 or more. That’s about 2.5 times more than filing for Chapter 7, according to a 2017 Southern California Law Review article. 

That may sound like a lot of money to shell out when you’re swimming in debt, but, depending on your goals, paying for a Chapter 13 attorney could be quite advantageous for you. Here’s why:

Why a Bankruptcy Attorney is Worth the Money

If you want to keep your house and your car, then you need to put yourself in the best position to achieve this goal. A D-I-Y Chapter 13 is not the way to do that. 

Handling a Chapter 13 on your own may cost you more money in the long run than hiring an attorney because you’re at greater risk of having your case dismissed. If that happens, you will not be protected from harassing creditors. And if your case is dismissed after you’ve already begun repayment, you could find yourself further behind on your debts since the payments you make during the repayment period are typically lower than what you contractually owe.

If you’re concerned about how much you’ll spend on an attorney, talk to him or her about paying the fees over time. 

Temporary Downsides to Chapter 13

Live on a Tight Budget – You’re going to have rein in the spending during the repayment period. It will be tough, but keep your eye on the end goal. It will be worth it. 

Credit Score Takes a Hit – Your credit score is going to drop. But if your score is already bad, this is a chance to rebuild it. People tend to see their credit scores improve within about two years of filing. Some people can even get back to the 700s, which is good.

Which Assets are Exempt in a Chapter 13 Bankruptcy?

Colorado bankruptcy exemptions can include clothing, household items and furniture, and equity you may have in a home or vehicle. If an item is completely covered by an exemption, you will be able to keep it.

How to Protect Exempt Assets in a Chapter 13 Bankruptcy

Exemptions look slightly different in a Chapter 13 bankruptcy than in a Chapter 7 bankruptcy. Filing under Chapter 13 allows you to keep your assets and develop a repayment plan to pay off your debts. Therefore, you do not need an exemption to avoid losing certain property.

However, exemptions do affect your monthly payments under the Chapter 13 repayment plan. The value of your non-exempt property dictates how much you will pay each month.

How to Calculate Your Exemptions

You will need to tally your income, property, debts, and expenses. To determine your disposable income, you will add up your monthly income and subtract your living expenses from it. You then will multiply the result by the number of months in your repayment plan, which will range from 36 to 60 months (three to five years).

Meanwhile, you will still need to determine which assets are exempt so you can subtract their value from the total amount of your property. In some cases, an asset may be only partially exempt if it is worth more than the value of the exemption.

Real-Life Chapter 13 Bankruptcy Stories

Many people think hiring a bankruptcy attorney means failure. In reality, bankruptcy can be the opposite. Here are a couple times I have helped my clients achieve success through Chapter 13 bankruptcy.

Saved Home From Foreclosure

Kept Valuable Transportation

One of my clients had a car they needed to get to and from work. Their credit was not good enough to get another car before or immediately after we filed. So we used a Chapter 13 repayment plan to reduce the interest rate from 22 percent to 5.5 percent, allowing them to keep the vehicle and save money each month on the car payment.

Losing their car could have been the first domino to fall in a much larger financial disaster. Now, they can keep their job and continue to rebuild their finances.

The Chapter 13 Bankruptcy Process

Now that you have some background on Chapter 13 bankruptcy, let’s take a look at what happens once you’ve filed.

Filing the Petition

A Chapter 13 bankruptcy case begins when you file a petition with the U.S. Bankruptcy Court for the District of Colorado.

Along with your petition, you must also file:

1. schedules of assets and liabilities
2. a schedule of current income and expenses
3. a schedule of executory contracts and unexpired leases
4. a statement of financial affairs. Fed. R. Bankr. P. 1007(b). 
5. a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling
6. evidence of payment from employers within the 60 days before filing
7. a statement of monthly net income and any anticipated increase in income or expenses after filing
8. a record of any interest you have in federal or state qualified education or tuition accounts. 11 U.S.C. § 521.
9. a copy of your tax return for the most recent tax year, as well as tax returns filed during the case. This includes tax returns for prior years that you had not filed when the case began.

You Will Also Need the Following Information

1. a list of all creditors you owe, along with the amounts and nature of their claims
2. the source, amount, and frequency of your income
3. a list of all of your property; and
4. a detailed list of your monthly living expenses, including food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

If you are married, you must gather this information for your spouse even if you are not filing a joint petition. The court, trustee, and creditors need to know your spouse’s income and expenses so that they can accurately evaluate your household’s financial position.

The Chapter 13 Bankruptcy Repayment Plan

You will create your own repayment plan, which you must submit to the bankruptcy court for approval. The plan should outline your income, property, expenses, and debts, along with how you intend to repay them.

Which Debts Will I Pay Off?

Not all debts are treated equally under the Chapter 13 repayment plan. You will be required to pay some in full, but not all. The judge and trustee will review your outstanding debts and rank them in order of importance, with the most significant being paid off first.

Generally, your repayment plan will be divided into the following three categories:

• Priority debts
• Secured debts
• Unsecured debts

Priority Debts

As the name indicates, priority debts must be addressed before any other claims. You are required to pay the full balance of these debts, which typically include:

• child support
• alimony
• criminal fines
• unpaid federal income tax obligations less than three years old (and sometimes older)
• federally backed student loans. This is a special case. You cannot automatically discharge federal student loans through bankruptcy like non-priority debts. However, you may be able to discharge these debts by engaging in a separate procedure called an “adversary proceeding” in conjunction with your bankruptcy filing. You will be required to show that you made a good-faith effort to pay the loan, and that being forced to repay it would cause hardship for you or your family.

Secured Debts

Many secured debts, such as home mortgages and auto loans, are considered non-priority debts under bankruptcy law. You may be permitted under Chapter 13 bankruptcy to make up past-due payments on a secured loan. This way, you can retain the property as long as you keep up with future payments (or arrange to buy the property outright in a lump-sum payment.)

Unsecured Debts

Unsecured debts–like those from credit cards, personal loans and medical bills–rank at the bottom of the Chapter 13 hierarchy. It’s totally possible that these debts will not be paid in full by the end of your repayment plan. If they are not, those debts may eventually be discharged.

How Long Will My Repayment Plan Last?

This depends on your average monthly income (AMI). To calculate this, start by reviewing your household income during the six months before you filed your case. Divide the total by 6 to get your AMI.

For example, let’s say there are five people in your family and your combined income was $25,000 over the past six months. Your AMI would be $5,000.

Next, you will multiply your AMI by 12. Using the above example, your annual income is $60,000.

If your income exceeds the Colorado median income level for a family of your size, you must submit a 60-month repayment plan. If your household income is below the median income in Colorado, you may qualify for a 36-month repayment plan.

So What’s the Median Income in Colorado?

The median income in Colorado bankruptcy cases is set by the trustee’s office. The office periodically revises the data, so be sure to check the means-testing website.

Using the above example, you would compare the $60,000 for a family of 5 with the table below. If it’s higher, you may have to submit a five-year repayment plan. If it’s lower, you could only be required to make payments for three years.

For cases filed on or after April 1, 2023, the median family income in Colorado is:

• $75,710 for one earner
• $93,175 for two earners
• $104,785 for three earners
• $122,707 for four earners

Add $9,900 for each individual in your household in excess of four. Source: U.S. Census Bureau

What If I Need to Change My Repayment Plan?

If you fall behind on payments, you risk having your Chapter 13 case dismissed altogether. You don’t want that. So if unforeseen circumstances pop up–such as a divorce or losing your job–it is best to inform your trustee before you miss payments. Then you can ask the court to reduce your monthly payments to a more manageable amount.

You can modify your plan both before and after it has been confirmed.

Let’s look at an example of when Colorado courts might agree to modifying your Chapter 13 repayment plan.

A Change in Circumstances

A Douglas County couple’s initial Chapter 13 repayment plan required them to pay $8,072 to unsecured creditors and $27,588 on secured claims collateralized by two 2003 trucks.

The couple’s financial situation shifted, and they asked the court to reduce their monthly payments from $949 per month to $500 per month. Under their proposed new plan, payments to secured claims were reduced to $24,320, and payments to unsecured claims were reduced to $1,758.

Trustee Argues Against Modification

The bankruptcy trustee argued that the couple’s most recent projected expenses were “not reasonable and necessary” and questioned their “good faith and sincerity” in offering to repay less than $2,000 to unsecured creditors who had filed claims totaling $136,000.

The wife testified that one of the couple’s vehicles had been totaled in an accident, forcing them to purchase a new automobile with a monthly car note. Both were facing long commutes to work, and their children required adult-supervised activities and care while they were not in school.

Over the trustee’s objections, the U.S. Bankruptcy Court for the District of Colorado agreed to the debtors’ modifications:

“The evidence does not show the arrangements the Debtors have made for their children are unreasonable in the circumstances of this case. Similarly, although the Debtors use their vehicles to drive relatively long distances to and from their employment, the evidence does not support a finding that the Debtor’s transportation costs are extravagant. In addition, the Debtors have children attending schools near their residence, and do not drive new or luxury vehicles. It appears impractical and unreasonable to suggest they must move closer to their jobs or obtain new jobs in order to demonstrate good faith.” In re Racine, No. 08-24812 MER (Bankr. D. Colo. Feb. 1, 2013)

A Hardship Discharge May Be Possible

If you experience a serious injury or illness while making payments under Chapter 13, you may qualify for a hardship discharge. The court will only grant this kind of discharge if:

• the hardship was beyond your control,
• creditors received at least as much as they would under Chapter 7, and
• modifying the plan isn’t possible.

What Does the Bankruptcy Trustee Do in a Chapter 13 Case?

Once you have filed your petition, a trustee will be assigned to your case. The trustee has many responsibilities in a Chapter 13 bankruptcy: checking your petition and repayment plan, collecting your payments and distributing them to creditors, and monitoring activity in your case to ensure you are complying with the terms of your repayment plan.

Reviewing Your Petition

Before the court confirms your plan, the trustee will review it to determine whether it meets certain bankruptcy criteria. If the trustee finds a problem with your plan, he or she will likely bring it up at the meeting of creditors and try to resolve the issue informally.

If you and the creditors cannot reach a consensus, the trustee will file a motion asking the bankruptcy court to fix the problem.

Conducting the Meeting of Creditors

The trustee will preside over the meeting of creditors, usually scheduled anywhere from 21 to 50 days after you file your petition with the court. This meeting’s purpose is to discover any potential problems with your repayment plan so that you can remedy them as soon as possible.

The trustee will place you under oath during this meeting and question you about your financial affairs and the proposed repayment plan. 11 U.S.C. § 343. Expect the trustee to ask whether the information in your petition is complete and accurate, whether you anticipate receiving additional assets anytime soon, and any other information relevant to your bankruptcy.

Creditors also will have the opportunity to ask questions.

Your spouse must also attend this meeting and answer questions if you have filed a joint petition. You generally can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee before the meeting.

Will the Trustee Appear Before the Judge?

Yes. The trustee will attend your Chapter 13 confirmation hearing and tell the judge whether your repayment plan meets the appropriate criteria. This is where the judge will decide whether to confirm your plan. If the judge does not approve your plan, you will likely be given time to correct the problem.

The Trustee is Responsible for Carrying Out Your Plan

You will not directly interact with creditors during the course of your Chapter 13 repayment plan. The trustee will act as the liaison between you and your creditors. You must begin making monthly payments to the trustee within 30 days of filing your petition. The trustee will hold the funds in trust for your creditors until a judge approves your repayment plan.

Once your plan is approved, the trustee will begin distributing the payments to your creditors in accordance with the terms.

What to Consider After Filing for Chapter 13 Bankruptcy

You’re almost done making payments. You can see the light at the end of the tunnel. However, it’s important to not lose focus. There are still several steps to be aware of.

Completing the Chapter 13 Plan

First, you must continue making payments until the trustee tells you to stop–even if you have paid the full amount. You will be issued a refund for any overpayment.

Once all required payments have been received, the trustee will conduct a final audit. This is the trustee’s way of making sure that you have made all the necessary payments and adhered to bankruptcy laws.

If no problems come up in the audit, the trustee will submit a Certificate of Final Payment with the bankruptcy court. This certificate informs the court that you have fulfilled all the requirements under your Chapter 13 repayment plan.

If all goes well, the discharge process is next.

The Discharge Process

A bankruptcy discharge releases you from all debts included in the plan. These debts are now erased. Creditors may no longer attempt to collect payments from you.

A trustee will usually submit a final report to the bankruptcy court within 150 days after the Certificate of Final Completion has been filed. This report summarizes the financial activity in your case over the course of the plan.

If the court finds that you have complied with all terms of the plan and fulfilled all other legal requirements, the judge will enter a discharge order.

Alternatives to Chapter 13 Bankruptcy

No one should ever be ashamed of filing for Chapter 13 bankruptcy. However, it is meant as a last resort and not a one-size-fits-all solution for every financial situation.

Seriously consider what filing for Chapter 13 bankruptcy may mean for your family before you finalize any decisions. Make sure you have explored all viable options before initiating the bankruptcy process.

Here are some possible alternatives if you decide Chapter 13 isn’t right for you.

Chapter 7 Bankruptcy

Many debtors steer clear of Chapter 7 bankruptcy because they’re afraid of losing everything they own. However, Chapter 7 is a far simpler process with a much higher success rate. It’s also quicker–a Chapter 7 bankruptcy typically lasts only three to four months, rather than three to five years.

If you are worried about losing your home or car, you are still able to claim exemptions for property that is essential to your everyday life in a Chapter 7 bankruptcy.

Debt Management Program

A debt management program entails a payment plan similar to the one in Chapter 13. However, these programs are managed by nonprofit credit counseling agencies and do not involve the court.

You would make one fixed monthly payment to the credit agency, which then takes care of distributing that money to your creditors. You will also undergo counseling to help you better understand your budget.

Participating in a debt management program will not impact your credit score. Still, there are several pitfalls to keep in mind. Unlike Chapter 13 bankruptcy, a debt management program offers no protection from creditors. Additionally, you usually will be required to pay off all your debt rather than just a portion.

Finally, since debt management programs only address unsecured debt, you will not be able to include car loans or mortgages.

Debt Consolidation

Debt consolidation is best if you are overwhelmed by credit card debt. This option merges multiple bills into a single debt that you will pay off monthly through a debt management plan or consolidation loan.

This reduces the interest rate on your debts, lowers monthly payments, and simplifies matters by sending only one payment to one source, once a month.

As with all other possibilities, there are downsides to debt consolidation. You must have a reliable source of income to make the monthly payments. Additionally, most debt consolidation loans have credit requirements. You could still qualify for a debt consolidation loan even with bad credit, but at such a high interest rate as to negate the positive effects of this option.

You’re done with payments. Now let’s explore some ways you may repair your credit.

Rebuilding Your Credit After Bankruptcy

Filing for bankruptcy means your credit score will likely take a beating. This could make it difficult to secure financing in the future. But don’t worry–there are ways to repair your credit score once you have been discharged from bankruptcy. Let’s delve into some options.

Apply for a Credit-Builder Loan

This is a small loan deposited into a locked savings account for a certain period of time. You’ll make monthly payments on the loan, and the lender will report your payments to the major credit bureaus.

Once your repayment term is up or you have made the minimum number of payments required to “unlock” some or all of the loan, you’ll receive access to the funds.

These loans are less of a gamble for the lender since the funds aren’t distributed until you have demonstrated that you can make timely payments.

Credit-builder loans are most often offered by smaller financial institutions like credit unions or community banks. These loans do not require good credit for approval, only that you have a steady source of income to make payments.

Create a Budget

Here is your chance to make good use of that required credit counseling. Calculate your monthly income and map out a plan for every dollar you receive. There are an array of online budgeting and savings tools to help you track your spending.

Ask a Friend to Co-Sign

If you are struggling to qualify for an auto loan or rental lease after being discharged from bankruptcy, ask a financially stable friend or relative to act as a co-signer. A co-signer assumes responsibility for the outstanding loan balance if you fall behind on payments. However, remember that your co-signer’s credit will also be adversely affected if you default on the loan or miss payments.

Call a Chapter 13 Bankruptcy Attorney Today

An attorney will help you maximize the fresh start that filing for Chapter 13 can bring. Your bankruptcy attorney will negotiate with creditors, advocate for your best interests in court, and even provide valuable post-discharge advice. Call 303-688-0944 today to begin your free case assessment.

Our Bankruptcy Partner, Elizabeth “Liz” German, has years of experience helping clients with bankruptcy and debt settlement issues.

Click here for a brief video interview with Liz.