Choices
When you are in financial distress and are looking for help dealing with your
creditors, you have three main choices: Credit Counseling, Wage Earner
Plan-Chapter 13 or Chapter 7 bankruptcy.
 Credit
Counseling: (Not the prebankruptcy credit counseling licensed and
controlled by the US Trustee) This is for people who want to avoid bankruptcy.
The counselor negotiates a lower interest rate or accumulates funds to make an
offer of 30% to 50% of the amount due. The field has recently been over whelmed
by scams. They claim to be "nonprofit," but are financed by donations of up to
$5,000. Your first payment or more are "donations." Your creditors do not get
paid for those months triggering late fees, collection activity and increased
interest rates. The collectors who start calling are not interested in the
counselor's theories of how creditors will be satisfied with less. They are
interested in #1.) How much?, and #2.) How soon?. Most people quit the
credit counselors in a few months when they see it isn't working, or when they
are sued.
There are good credit counselors. The ones listed in the US Trustee
website have good reputations.
Chapter 13: is like credit
counseling. You pay
creditors over a period of time at a rate you can afford. Chapter 13 has
advantages over credit counseling:
- A Bankruptcy Judge presides and prevents the creditors from doing anything
to collect.
- You pay no interest on unsecured debts.
- The time is limited to 3 to 5 years. At the end of the plan whatever
unpaid debts are discharged.
- It is cheaper. Because interest stops, the trustees fee - 6% of the
amount paid out plus attorney fees and costs are much less than
3 to 5 years of interest.
- The payments are affordable. The payments are designed to be fair to you
and your creditors and are based on your income and hiring expenses.
- It has other uses - such as stopping foreclosure, preserving property and
getting court protection within 8 years of filing Chapter 7 bankruptcy.
Chapter 7 -
Straight Bankruptcy: has the benefits of
Chapter 13 and more: no payments and you can keep your property as a general
rule, but with exceptions. Chapter 7 is usually a better choice than Chapter 13 for
most people. We can discuss which is best for you at the initial interview.
Poor
Mans Bankruptcy: Leave town in the middle of the night. Just Kidding.
No Bankruptcy: Others do
not need bankruptcy, they are living on retirement income or are earning less
than $231.75 per week after taxes. They are "judgment proof". Creditors can sue them
and get judgment, but they cannot collect. They do not talk to creditors
on the phone and ignore their letters.
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