Comparing Chapter 7 or Chapter 13 vs. Debt Consolidation

Can I avoid bankruptcy and consolidate my debts fast!

I own a home and a car I currently pay on and am up to date with those payments but I am 6 months behind on all of my credit cards. I do not have enough equity to borrow off my house and even if I did my credit is so bad no one will give me a loan. I have checked into bankruptcy but there is a chance they would take my house. I have also tried a debt settlement program but it was a scam. If you have any advice it would be appreciated.

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Bill's Answer
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There are several possible solutions to your problem, depending on how old the debts are, your financial situation and how much money you can afford to allocate to your debts on a monthly basis. Therefore, I will tell you about some alternatives to bankruptcy and about bankruptcy itself.

A good first step is to seek a no-cost debt consultation with one of Bill's approved debt help partners.

Credit Counseling

One option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS arranges a new payment amount with each of your creditors, usually based on a reduced interest rate. You make a single monthly payment to the CCCS which distributes the funds to your various creditors, based on the new payment amounts and interest rates.

There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce the size of your required minimum monthly payments enough to improve your financial situation. Second, it has a negative impact on your ability to obtain a loan, so you may not wish to enter into a Debt Management Plan if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan. If you don't complete the program, and many who enroll in DMPs do not, you will not solve your problem.

Debt Settlement

You may also want to consider the services offered by a reputable debt settlement firms. While I know that there are several fly-by-night debt settlement operations on the internet, there are also several very good operations that may be able to help you. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though — they will significantly damage your credit while in the program and for at least a year or two afterward. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt. If you are interested in re-exploring debt settlement as an option, I encourage you to visit the Bills.com Debt Help section, using the link I mentioned above. We can put you in contact with a pre-screened debt settlement firm that may be able to assist you.

If you are interested in general in negotiated debt settlement, I can give you the following facts:

Debt settlement, also called debt negotiation, is a form of online debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution of online debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 bankruptcy. The trade-off here is a negative credit rating versus saving lots of money.

Depending on your income and the type and amount of debt, one of the options I have described above may be able to help you. I encourage you to explore the Bills.com debt page to read more about these and other options available to you.

If you find that the options I mentioned above will not work for your situation, bankruptcy may be able to help you. There are two basic types of consumer bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, also called a liquidation bankruptcy, a bankruptcy trustee will examine your assets, and if you have any assets which are not exempt, sell those non-exempt assets to repay your creditors. Once your non-exempt assets have been sold to pay your creditors, all remaining unsecured debts will be discharged by the bankruptcy court. Many people who file for Chapter 7 protection are able to keep all of their property because they have no non-exempt property. Each state has its own schedule of exempt assets, so you should consult with a qualified bankruptcy attorney in your state to find out if Chapter 7 is a workable solution for your situation. An attorney will also be able to tell you if you qualify to file Chapter 7 under the new guidelines enacted by Congress in 2005. You mention in your question that you may lose your home in bankruptcy, so it sounds like Chapter 7 was the bankruptcy chapter you discussed with your attorney. There is an alternative, though, in Chapter 13 bankruptcy.

A Chapter 13 bankruptcy, also called a "wage-earner's bankruptcy," allows you to propose a plan to repay creditors over time — usually five years. Your monthly payment amount will be based on your monthly disposable income as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged. Chapter 13 is commonly used by debtors whose assets exceed the exemptions offered by state law. It is also used by many consumer debtors who do not qualify for Chapter 7 relief under the means test, which went into effect in 2005 with the Bankruptcy Reform Act.

If you are considering filing bankruptcy, you should consult with an attorney to find out if bankruptcy will benefit your financial situation. I encourage you to read more about bankruptcy at the Bills.com bankruptcy information page.

I hope you will be able to resolve your financial problems without the need to file bankruptcy. I encourage you to explore all of the options I have mentioned above, both bankruptcy and non-bankruptcy.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

VIDEO: Debt Consolidation - What is Debt Consolidation?

7 Comments

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  • 35x35
    Mar, 2010
    Marley
    You know more and more people today are using credit cards, payday loan etc. And because of that some of them find their self on debt trap. It's very easy to find yourself in debt, in fact, it's encouraged by banks, credit card companies, and their marketing – which seems pretty perverse. If you get into debt, using some sound debt management will assist you out. It starts with sound budgeting, and allocating more towards paying off credit card debt, student debt, whatever it is, so you have a timeframe and goal of debt relief. Lay off the plastic devils and save up for things – there are sources of help if you considerably need it like payday loans, if necessary, but the point is to repay your debt off faster, so that you can keep away from getting into debt again. This article is really nice because it tackles on how a particular person must manage their money. I'm glad I visited this site.
    0 Votes

  • 35x35
    Nov, 2008
    Sam
    If your income or expenses have changed significantly since you filed your Chapter 13 case and your plan payments were established, you or your attorney may be able to file a motion with the bankruptcy court to amend your current Chapter 13 plan. If you can show that you have experienced a hardship resulting in loss of income, such as job loss, the court should review your finances to make sure that your new plan will allow you to pay off your creditors in the allowed period (generally five years maximum). If you cannot afford to pay off your creditors as planned, you may need to petition the court to allow you to enter into a composition plan, which would allow you to proceed with Chapter 13 without paying off all of your creditors; any debts left after five years should be discharged by the court. If you are unable to fund your Chapter 13 plan as required, I strongly encourage you to consult with your bankruptcy attorney as soon as possible so you and he can work to minimize the potential damage caused by your inabaliilty to meet your plan payments. Your attorney should be able to help you in filing the necessary documents to petition the court to modify your Chapter 13 plan. If your income has dropped so much that Chapter 13 is no longer feasible, your attorney should be able to help you in either converting your current bankruptcy or refiling your case as a Chapter 7. It is imperative that you consult with your attorney as soon as possible to determine how to best proceed.
    0 Votes

  • 35x35
    Nov, 2008
    Vivek
    what happens when i cann't pay as agreed under chapter 13 of bankruptcy? can i ask for principal reduction
    0 Votes

  • 35x35
    Jan, 2008
    jay
    hi, i am in a debt settlement program right now, but my income cannot cope up with my bills and the monthly payment i am paying the settlement company, is it possible to file for bancruptcy? Thanks
    0 Votes

  • 35x35
    Jan, 2008
    Neuman
    Yes, you can always have a consultation with a qualified bankruptcy attorney to explore your options. If your is just not sufficient to handle these payments then bankruptcy might be the only option.
    0 Votes

  • 35x35
    Sep, 2007
    Brenda
    I have read your comments with interest and was reassured to see that you consider Freedom Debt Relief a good option. We have been on the program for one year now and they have resolved 2 of our credit card debts. However, Discover is really balking at negotiations by filing a lawsuit. What we have learned, the hard way, is that the credit card business is a humongous one and they are practically controlling the country. They may as well be in the White House since they have so much power. They probably reside very closely. They don't give a darn what may have happened to you, they just consider you deadbeats even though you paid them consistently and on time for many years. Congress needs to put controls on them. They harass people with all the pre-approved credit crap they said through the mail. Take Discover, for example, even though I held a Discover card for many years, they were still sending me offers for the stupid card.. how many Discover cards does one person need??? The credit card companies are out of control and this current administration has given them much more control than they need. Stop them now. They are a much bigger epidemic than the plague ever was.
    0 Votes

  • 35x35
    Oct, 2007
    Bill
    I am happy that you are having a good (albeit not a walk in the park) experience with Freedom Debt Relief. Typically, the response to getting sued by a creditor (in this case, Discover, who is known to be very dirty and aggressive with their customers... even loyal ones) is one of 4 fold: 1. Settle the debt (typically for between 75-90%) 2. Go on a payment plan (frequently called a stipulated judgment payment plan) 3. File bankruptcy 4. Do nothing and get a judgment and then potentially a lien, levy, or garnishment. I am sure that Freedom Debt Relief will work hard to get the optimal outcome for your situation, but be sure to keep them apprised of your situation. I bet that at the end of the day the 'blended' resolution rate will end up saving you a ton. Good Luck and thanks for emailing Bills.com. Bill
    0 Votes