Attorney John Mlnarik

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Bankruptcy vs Other Options

Posted by on in Bankruptcy Law
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When you think about filing bankruptcy you really want to understand all your options. This is the quick overview of bankruptcy vs other other options. If you are considering whether bankruptcy is right for you, solid information is needed before making a decision. You may be considering doing nothing, debt consolidation, or even litigating with creditors. Today, we are going to compare bankruptcy with other options.b2ap3_thumbnail_home-bankruptcy.jpg Bankruptcy vs Doing Nothing

If you are in debt and it is bad enough to start research on the internet, doing nothing is not the best option for you to consider. Not really knowing about what your options is never a good idea Consider if you were sick, you would get an opinion about the outcome.The same goes for bankruptcy. At some point with money problems there is only so much you can do yourself. This applies to all of us. Money is difficult for most of us to manage. Sometimes you are going to need advice about the pros and the cons of your specific situation. If you are starting to get harassed by the creditors and debt collection agencies, you can leave yourself open to a lawsuit. If you are sued for whatever reasons you have just a few weeks to determine how you are going to respond. Doing nothing means that assets that you can protect go unprotected.Not protecting your 401k or the equity in your homes to try desperately to pay off bills has a devastating on your retirement . You need to start with getting some advice before, due to lack of information, you can make a bad thing worse.

Bankruptcy vs Debt Consolidation

First of all, no one wants to file bankruptcy. It is an urban legend that people who file bankruptcy are doing so lightly ..they are not. But, if you are driving down the road thinking about the money issues and you hear the advertisements for debt consolidation sounds like a good thing.The Great Recession is still plaguing many of us. News outlets are reporting that jobs aren't being created and that the only reason unemployment claims are down is that for many, their benefits are exhausted. With all these stressors, one might think people would be flocking to bankruptcy protection in droves.In proportion to the economy, the upswing in bankruptcy filings has been fairly modest.

Is debt consolidation ever a good idea?

The question I ask is: Will the borrowers have a lower monthly payment over the next five years in their proposed debt consolidation than in bankruptcy Chapter 13 ? If the answer is yes, they should consider debt consolidation. If they may be unable to qualify for Ch. 7 or 13 (i.e would have to be in a Ch. 11!) or for other reasons bankruptcy would have serious and unwelcome consequences like sacrificing property the borrowers own, they should consider debt consolidation. Disqualifying factors can be that the borrowers are over the debt limit for a Ch. 13. Yes, there is a debt limit for Ch. 13. Two limits, actually; one for secured debt and one for unsecured. [Chapter 7 has no debt limit.] Those are the two conditions under which I refer a potential bankruptcy client to a debt consolidator. Otherwise, typically a Ch. 7 bankruptcy gives the client a fresh start, and the problem can be solved years earlier than other options.

Bankruptcy-Chapter 7 VS Chapter 13

Chapter 13 bankruptcy usually runs five years, which is about the same or longer than debt consolidation. This type of bankruptcy provides you protection from creditors while the outstanding debt is settled through a repayment plan. It can be used to halt home foreclosure. Filing Chapter 13 is sometimes called the home-saver bankruptcy. Depending on what the debts are for, the court may reduce the amount repaid to some creditors. However, once the creditors have received the agreed upon payment via the court, the debt is considered paid in full. This will mean that your credit rating will stay low for the period of time of the Chapter 13 length. Furthermore, Chapter 13 requires a monthly repayment of 100% of your disposable monthly income.

Chapter 7 bankruptcy is shorter, less complicated, and less expensive. It allows you to have all of your unsecured debt wiped clean. The process usually takes no more than three months and it is the most common type of bankruptcy. Compared to Chapter 13, which takes three to five years, Chapter 7 is the best option for those who qualify. Furthermore, Chapter 13 requires a monthly repayment of 100% of your disposable monthly income. A “fresh start” or “clean slate”, Chapter 7 is a form of bankruptcy designed to let people (and sometimes businesses) get out of debt without repaying any of the “unsecured” creditors. While Chapter 7 also requires the person(s) filing go turn over to the bankruptcy trustee all “non-exempt” assets, skilled planning with an experienced bankruptcy lawyer can usually ensure all the filer’s assets are exempt (i.e., the filer gets to keep the property.)

With Chapter 7, the Court, not the creditors, decides whether any assets should be sold to pay creditors. While there is both an art and a science to actually completing the documents to be filed in a Chapter 7, much greater skill is needed to plan for minimum loss to the person filing. If the person filing Chapter 7 can’t pay reasonably necessary living expenses and pay something to the unsecured creditors, the Chapter 7 filer should sail through the process pretty smoothly. However, with Chapter 7, Debt consolidation cannot even do this.

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