Filing Bankruptcy, Debt Relief Option if Credit Consolidation or Debt Settlement Don’t Work
When it comes to debt relief there are basically three options: Credit Consolidation, Debt Settlement, and Bankruptcy. The Bankruptcy option may be attractive for debtors who have no funds to propose a settlement, cannot afford a consolidation repayment plan or have other issues that only a bankruptcy can fix like stopping wage garnishments, bank levy, or terminating unfavorable contracts like unaffordable car leases and loans.
Typically, Chapter 7 is the preferred method of bankruptcy, as it is fairly quick. The process takes about 90 days and the debtor starts fresh. Some individuals with high income may not qualify for the quick and easy Chapter 7 liquidation and must consider a Chapter 13 repayment plan. If debtor’s income is clearly above the state’s median income, it is wise to consult an expert who can make the necessary calculations in figuring out whether the debtor can do a Chapter 7 and if not what the Chapter 13 payments might be.
You Must Pass The Means Test
Failing the Means Test, being behind on secured payments like mortgages or car loans on assets the debtor needs to keep, or having debt that is only dischargeable under Chapter 13, may make it necessary to proceed under the Chapter 13 repayment plan.
The calculations for determining whether one passes the means test are not simple for lay person and arguably the rules are neither intuitive nor fair. Often people wrongfully assume they do not qualify for a Chapter 7 simply because they did not understand the full spectrum of deductible expenses. Results also vary from one month to another if either the income or expenses change over time. Do talk with a bankruptcy attorney to get a proper evaluation.
If you are looking at a Chapter 13, it is also wise to compare it to a debt consolidation plan. Debt consolidation is voluntary and if the creditors are willing to accept lower payments that are affordable, the debtor could avoid bankruptcy all together. However, when a debtor is behind on secured assets (home or a car), has a second Deed of Trust that may be avoided through the Chapter 13 lien stripping tool, or if the creditors are uncooperative and debts simply too large for a reasonable consolidation, a Chapter 13 may be a great solution.
To be eligible a debtor must be able to propose a viable plan for 3-5 years. Similarly to the debt consolidation plan, it works when it actually works all the way through. The difference is that under Chapter 13, the repayment plan is not a voluntary process for the creditors and any unpaid balances left after the completion of the repayment plan are discharged. Debt consolidation on the other hand is completely voluntary on the part of the creditors and repayment continues until all debts are paid in full.
Kathryn U. Tokarska, Esq. is admitted to practice in State of California. Graduate of California Western School of Law in San Diego, California, Ms. Tokarska concentrated her legal studies in area of Bankruptcy, Estate Planning, Taxation, Securities Regulations, and Real Estate Finance. She has over fourteen years of experience working for major financial investment institutions, offering financial planning services, investment products, wealth building and preservation strategies. Ms. Tokarska holds a Financial Paraplanner certificate, was a licensed stockbroker, and is currently enrolled in an LL.M. in Bankruptcy/Finance at Thomas Jefferson School of Law.
For assistance, contact Tokarska Law Center online, by Emailing Us, or by phone (619) 285-1992. We are a FEDERAL DEBT RELIEF AGENCY. We help people file for Bankruptcy Protection under the Federal and State Laws.