Comparing Chapter 7 or Chapter 13 vs. Debt Consolidation

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

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