|
BANKRUPTCY
There are several types of bankruptcy, but only two that consumers generally need to be concerned with.
CHAPTER 7 BANKRUPTCY. If you qualify for a Chapter 7, you can “discharge” (effectively eliminate) most of your debts without having to repay anything. Not everyone qualifies for a Chapter 7. Under the new bankruptcy law, all debtors must take a "means test." The bottom line is that if your income is above the average for your state, OR if you can afford to pay more than $100 per month to your creditors after all of your reasonable expenses are taken into consideration, then you will probably not be allowed to file a Chapter 7. Regardless of whether they qualify, many people want to avoid a bankruptcy for their own personal reasons.
CHAPTER 13 BANKRUPTCY is a solution wherein you make monthly payments to a court appointed trustee for a period of 3 years if your income is below the state median, or 5 years if it is above the state median. The amount you pay is as much as you can afford to pay – meaning that your reasonable living expenses are subtracted from your income, and everything left over goes to the trustee..
A Chapter 13 may be your best option if:
- you owe large tax debts that cannot be eliminated by a Chapter 7 and you want to stop the interest and penalties by forcing the IRS to take a payment plan.
- You own real estate that is being foreclosed on; or
- You don’t qualify for a Chapter 7 and you want to stop lawsuits against you.
CHAPTER 13 VS. DEBT SETTLEMENT
The chart below gives a comparison between a Chapter 13 Bankruptcy and a Debt Settlement Program.
| |
Chapter 13 |
Debt Settlement |
| Amount you pay |
Your "Best Efforts," meaning your gross income minus your reasonable expenses. |
What you feel you can afford. As a rule of thumb, it will be 50% of the balance on your debts divided by 36. |
| Who decides how much you pay? |
You make a proposal, which can be commented upon by the Trustee, and is subject to final approval or disapproval by the Court. |
You do. |
| Effect on Potential Lawsuits |
No lawsuits are allowed while a Chapter 13 is pending, except as allowed by the Bankruptcy Court. |
Debt Settlement does not force creditors to cease lawsuits. As a practical matter, very few creditors sue if one is represented by a law firm in a debt settlement program. |
| Costs |
About $1,500 to $3,000 attorney fees. 11% of your payments go to the Trustee as fees. |
15% of your debts. |
| What if your income increases |
If your income goes up, you must increase your payments. If you get a big tax refund or other unexpected bonus, that must be paid to the Trustee |
You are in control of your income. |
| Effect on Creditor Harassment |
Creditors must stop all phone calls and collection letters when notified that you have filed a Bankruptcy. |
Bill Collectors (not necessarily the original creditors) must stop phone calls when notified that you are represented by an attorney. As a practical matter, original creditors normally stop as well. |
| Information you must provide to Creditors |
You must provide full and detailed information on every aspect of your financial life when you file a Bankruptcy. You will placed under oath and will be questioned by the Trustee, and by any creditor who wants to question you. |
Your attorney will provide any creditor with only the information he deems necessary in order to settle your debt. |
| For how long do you pay? |
Three years if your income is below the state median. Five years if it is above. |
Decided upon by you and your Attorney. The average plan is for three years. |
| How Much Are Creditors Paid? |
Depends on your monthly payment. Can be anywhere from 1% to 100% |
The target, and the average is about 50% of the principal. |
To find out if Bankruptcy is the option for you, call 877-776-7715.
|