Bankruptcy Options Which One Is Best For Me.

Most people who are thinking about filing for bankruptcy wonder which options is best for me. The choice on what type of bankruptcy file can be confusing considering the choices available. The most common type of consumer bankruptcy filings are chapter 7 bankruptcy and chapter 13 bankruptcy. If you have a small business and want to reorganize you may look at a chapter 11 bankruptcy.
The most common type of bankruptcy is a chapter 7 bankruptcy and for most people involves keeping your exempt assets, and shedding your unsecured debts. The most common type of bankruptcy is a no asset bankruptcy. In this type of chapter 7 bankruptcy your creditors will not get paid anything from your assets. The other type of chapter 7 case is an asset bankruptcy. In this type of bankruptcy creditors will be paid back from money collected from the bankruptcy estate. In Minnesota the most common reason for assets being available to the bankruptcy estate are using the Minnesota State Exemptions when filing.
The next most common type of bankruptcy in Minnesota is a chapter 13 bankruptcy. This is a bankruptcy that allows you to pay back your debt over the next 36 to 60 months. The difference in payment terms depends upon your income. If you income is above the median income you can do a 60 month payment plan, if you income is below the median you can do a 36 month plan. This type of bankruptcy works well if you have debt that cannot be discharged in a chapter 7 bankruptcy. Or if you have assets that you do not want liquidated in a chapter 7 bankruptcy. The chapter 13 bankruptcy option is a far better option for most people than debt consolidation. The chapter 13 allows all of your debt to be rolled into one payment that you make monthly. It stops all the interest on the debt and stops all collection activity.
If you are stressed out from debt that you know you cannot pay back, or if you have wage garnishments or bank levys, you need to talk to an attorney to determine if bankruptcy is a good option for you. In most cases the longer you wait to consult a bankruptcy lawyer the worse the debt becomes.

Debt Consolidation, Settlement or Chapter 13 Bankruptcy, Your Best Option

Most debtors want to pay back their debts, they do not want to default.  As proof, why else would individuals jeopardize retirement and savings, borrow money from family and friends in an attempt to pay back creditors.  Many of the same individuals will attempt to use a technique called debt settlement or debt consolidation to satisfy their unsecured debt.  The problem with the two options is the way that the settlement occurs and the success rate.  The success rate ranges from 10 to 15 percent.  To put it another way you have a 85 to 90 percent chance of failure.  Part of the reason for the low rate of success is the way that debt consolidation or debt settlement are managed.

Debt consolidation will require a debtor to sign up with a service who takes over, through a power of attorney.  The debt consolidation company then begins receiving of statements, contact from creditors as well as legal notices.  For a while, usually 3-6 months things seem great  because no creditors are calling or sending collection letters.  The problem occurs when during those 3-6 months no payments are being made and interest climbs to 28-32 percent, late fees, and over the limit fees continue to add up.  In many of those cases individuals will end up with debt that started at $10,000 and will have ballooned into debt of $15,000 to $20,000, without the debtor’s knowledge.  Ultimately when no payments are received creditors will sue the debtor, obtain judgment and begin to garnish wages.  The judgment will include not only the nearly doubled bill but also the attorney fees incurred in obtaining the judgment.

Debt settlement involves using lump sums of cash to settle debts.  Creditors at times are willing to take a up front amount rather than wait for payments.  The problem with debt settlement is three fold.  First, all creditors need to agree to a settlement amount.  It does no good to settle with just a few creditors, all creditors must agree for settlement to work.  Second, you must have the cash up-front to settle the debt.  Cash up-front is the catch 22 of debt settlement.  If individuals had cash available they wold not be in debt.  The result of needing cash up-front involves borrowing or cashing out retirement or borrowing from family or friends.  Where as retirement is fully protected up to 1,000,000.00 in chapter 13 bankruptcy, debt settlement requires debtors to withdraw or loan from their retirement.  Third, are also tax penalties for retirement withdrawal and for settling debt.  Many individuals who settle find themselves owing money to the IRS which is a one of the worst creditors.

The problem with both, in addition to the success rate, is that both debt settlement and debt consolidation receive their payments up front regardless of success.  The up front payment also comes at the expenses of funds that would otherwise be used to pay back creditors.  Both business practices routinely are investigated and fined by the Minnesota Attorney General’s Office.  Debt consolidation companies are a multi billion dollar industry.  They exist to make money off of your debts.  Here is a link to the Minnesota Attorney General’s press release on debt settlement companies:

http://www.ag.state.mn.us/consumer/PressRelease/100222UnLicDebtSett.asp

For those individuals who would like to pay back their creditors a chapter 13 bankruptcy is a much better option than debt consolidation or debt settlement.  Filing chapter 13 bankruptcy in Minnesota involves creating a budget that allows for living expenses to be taken out first.  The living expenses include but are not limited to: house payments, car payments, food, gas, car repair, entertainment and clothing.  The difference between net income and your monthly expenses will go to pay back your creditors in 3 or 5 years.  Plans can call for as little as 5 percent to as much as 100 percent.  The other benefit is that no interest is accruing on the debts.  So long as the plan is followed for the 3 to 5 year plan the remaining debt will be discharged.

If you are considering debt consolidation or debt settlement I encourage a review of all options available.  Weigh the cost and benefits of those programs to Chapter 13 bankruptcy.  If you want to pay your creditors back, Chapter 13 is the best option.  Contact me today for a free consultation.