Need to decide between Bankruptcy and Paying off.

[bkjay71]

I owe about 70K on Credit cards. These accounts are four years old; I thought they would get charged off but now starting to get letters from Midland Funding and also got one account submitted to courts by Midland. Looks like if I do not solve this issue, it going to linger with me for a long time to come.

I have two options,

1. Get a Bankruptcy attorney and file for bankruptcy
2. Get an attorney who works with creditors come up with a plan, and I pay off. (I can save and pay 1K/Month so looking at about six years to pay it off).

Which options should I choose?

Thanks

Jay

[bkjay71]

I also want to add that my career has taken a positive turn as of late last year, went from making around 50K to 90K and I expect this number to go up. (All thanks to attending a coding boot camp and becoming a software developer)

[justbroke]

1. Get a Bankruptcy attorney and file for bankruptcy
2. Get an attorney who works with creditors come up with a plan, and I pay off. (I can save and pay 1K/Month so looking at about six years to pay it off).

Those are the two questions that nearly everyone struggles with bkjay. The question is when do you want to be done with all this? I'll address the second solution first and the first solution, second.

The second solution is the debt-management plan, or a settlement. The problem with these is that you do not know if it will work. I recently read that these settlement goals find only 20% of the creditors willing to deal. Of that 20%, only 45% of the debtors actually complete the settlement terms. That means less than 10% actually work. Debt management through consumer counseling also has its issues with about the same rate of completion, less than 10%.

Another downside of the settlement is that you are likely to receive a 1099-C (Forgiveness of Debt) which could make you liable for taxes on the amount that was forgiven.

The first solution is always bankruptcy. It settles everything with finality, no taxation for any debt that is discharged, and creditors don't really have a choice but to participate or they are done. The only problem with bankruptcy is the perception that it destroys your credit. If you're seeking debt settlement and debt management, your credit is already destroyed. Just six months after my Chapter 7 discharge I had a 7.9% rate at my bank for a new car. No one would touch you if you went into debt management with 90-day late and collections in your credit profile.

You may not qualify for a Chapter 7 with that income, so you may be in a long-term Chapter 13 (36 to 60 months). Even so, it may be the better option. Think of a Chapter 13 as a debt managment plan combined with a debt settlement plan. The debt management plan is the Chapter 13 plan itself, and the settlement is forced, by operation of law, upon the creditors.


References:
https://www.clearpoint.org/blog/what...bt-settlement/

[bkjay71]

Thanks for this info. I know I will not get Chapter 7 due to my income level. My only worry is that if I got Chapter 13 will I be forced to pay a monthly payment that is higher that what I want to by removing some of the expenses that can considered luxury. For example do i need to move to a smaller rental unit, remove my kid from private school

[AngelinaCat]

Don't be so sure you won't qualify for a CH7. 'Hub and I thought sure we wouldn't. But we went to the pre-filing counseling--with a live human--who told us that with our income, and outgo--we were better suited to a CH7 rather than the CH13 we were trying for. When I lost my FT job, we had no choice. Talk to your attorney, if you have one.

Good wishes to you!

[leonel9]

I'm also at a similar income level to you and was able to qualify for a Chapter 7. I don't have a child, but I do support a disabled family member. Definitely speak with a few attorneys. You may also want to check out the means test calculator at legalconsumer.com. It should give you a general idea of how close/far you are to being eligible for CH7 vs. CH13.