How to decide if BK is the right option?

[Mamabear]

I did retain an attorney with a small down payment towards his fee. He is working on drafting everything up.

That said, a few friends have suggested to settle with the creditors. Its a mix of medical and credit debt. I have student loans also, but I am not even looking at those right now as they are not dischargeable. The debt is about 26k.

What should I be looking at to make sure I am making the right choice?

[justbroke]

Bankruptcy can do one thing debt settlement can't do. That is... absolutely, positively, legally, and permanently, discharge your prior (dischargeable) debt (period). With debt settlement, you are not even assured that a.) the creditors will settle or b.) for how much they want in order to settle. Additionally, settlement can create a tax liability related to how much was forgiven (you'd get an IRS Form 1099-C Forgiveness of Debt).

Some creditors will settle your debt, and then sell the remaining balance to a junk debt buyer (JDB) just keeping you inunudated with threats or lawsuits or actual lawsuits.

If there was only one creditor that I had an issue where I needed to settle, I may pursue that. If you have more than 2 creditors and are being threatened with lawsuits and/or have actually been sued, then you only really have one option that will rid you of debt. That option is bankruptcy.

Of course this is a financial decision. It was the best one that I made. I exited Chapter 7 with a FICO of 640 and within 12 months had all scores in the high 600s (with an Auto-Enhanced score in the 700s). You simply can't do that with debt settlement.

Cost to discharge $26K? About $1,500-$2,000 for a Chapter 7.

Cost to settle? Anywhere from 30% ($8,000) to lawsuits that then require you to pay the debt plus interest plus attorney fees and costs.

You'll have to determine which has more value for you and your particular situation.

[Mamabear]

Thank you for taking the time to respond!

I have about 20 different creditors due to some large medical expenses for my child, there are still some more bills coming in im sure.

I am looking at a 13. I tried CCCS but some of them refused to work with the company and were giving them hassles about the proposed payment plan.

[justbroke]

I am looking at a 13. I tried CCCS but some of them refused to work with the company and were giving them hassles about the proposed payment plan.

That shows the exact problem with settlement. Not all creditors want to play. Smart creditors would also do an asset search to see if there is attachable assets should they decide to file suit. (Of course your standard asset exemptions for your particular State will also come into play should a creditor attempt to attach assets after receiving a judgment.)

A Chapter 13 can be 36-60 months and will cost more (typically $3,500-$4,500 with a good portion paid "through the plan" over time). The real question with the Chapter 13 is whether you would be in a 100% plan. Even in a 100% plan, you get the protection of the bankruptcy court and what we call the "5-year" refinancing of the debt.

[Mamabear]

The attorney said I was under the income guidelines so I would be in a 36 month plan. He did not specifically say the percentage.

There are not attachable assets. All I have right now is my car, and and a checking account I keep very little funds in. Any my paycheck of course. Sigh

The only concern I have is the car, I have a co signer on it. I would ideally like to just continue to pay normally on this so the person that signed is not affected. That is the reason I am dragging my feet so to speak.

[justbroke]

The only time, in a Chapter 13, that a creditor could go after a co-debtor would be that you are not surrendering the property and that your plan doesn't pay the entire balance (usually not an issue for secured creditors because they would complain). If you were to surrender the car, then the creditor could go after the co-debtor. I suspect that you want to not only keep the car, but you want to protect the cod-debtor. The co-debtor automatically receives protection by your Chapter 13 so long as you are going to payoff the debt through the Chapter 13.

If you submitted a Chapter 13 Plan that proposed to surrender the vehicle, the creditor "may" decide to go after the co-debtor for the difference between the balance and what they obtained at an auction. This difference is known as the deficiency. The creditor would file for relief from the co-debtor stay and then they would be allowed to pursue the co-debtor because you are not going to pay.

That's the general idea behind the co-debtor protections as I know them.

[switch625]

I also believe that in debt settlement, the amount of debt that is "forgiven" is generally considered taxable income and you would have to pay Federal income tax on that. That is not the case with debt resolved through BK. The one good thing about Chapter 13 is that you put the ball in the creditors' court with respect to whether or not they even want to be paid through a Chapter 13 plan. A couple of my creditors (I had nearly as many as you), who accounted for about half of my total unsecured debt did not file proof of claims when I filed my Ch. 13 petition. As long as I complete my plan successfully, those non-proof of claim-filing creditors won't get paid and I won't owe those creditors anything when discharged. Maybe you will get that lucky.

[Lindahill]

Hi, first you should ask the percentage of the monthly plan made by your attorney. Filing for bankruptcy with attorney will charge you thousands of dollars. Filing it by yourself will also give you a headache. You can try other alternatives like bankruptcy petition preparer. Just make sure you select the right one.

[LadyInTheRed]

Hi, first you should ask the percentage of the monthly plan made by your attorney. Filing for bankruptcy with attorney will charge you thousands of dollars. Filing it by yourself will also give you a headache. You can try other alternatives like bankruptcy petition preparer. Just make sure you select the right one.

I have never heard of an attorney's fee for bankruptcy being based on a percentage of the plan payment. It is usually a flat fee. For a Chap 7, fees seem to range beteween $1500 and $3000. For, a Chap 13, mine seems to be at the top end. I paid $6,500 which included $1500 for a lien strip. As you will see in my signature, it was well worth it.

If you use a petition preparer, keep in mind that if they follow the law, they are no more than a typist. They should only complete the form as you direct and cannot tell you how to complete it. You are still filing pro se.

[Lindahill]

Bankruptcy can help you settle debt. You’re not even sure if your creditor will settle your case. It always depends how it goes. It’s good to ask help from lawyers but that will charge you thousands of dollars. If you are going to file for bankruptcy, you have to know what type of BK is right for you. You can also consider the packages here [link removed by moderator]. This site should be able to help you with bankruptcy documentation preparer. Ask about a free case evaluation.

[LadyInTheRed]

Bankruptcy can help you settle debt. You’re not even sure if your creditor will settle your case. It always depends how it goes. It’s good to ask help from lawyers but that will charge you thousands of dollars. If you are going to file for bankruptcy, you have to know what type of BK is right for you. You can also consider the packages here [link removed by moderator]. This site should be able to help you with bankruptcy documentation preparer. Ask about a free case evaluation.

Everyone should understand that a document preparer is basically a typist. They are prevented by law from doing anything other than filling out forms according to your instructions. If you use a document preparer, you are still filing without an attorney. The site that Lindahill is trying to advertise does say that in fine print at the bottom of the screen, for those who actually bother to read it. The site apparently offers access to an attorney for a low monthly fee. I can't imagine how that fee will buy you any adequate legal advice if you run into a problem in your BK. A document preparation service may be a good tool for a pro-se filer as long as they understand what they are getting.

[Mamabear]

Thank you for all the replies. Still gathering money to pay off the rest of my downpayment.