Avoiding Bankruptcy
If you are trying to avoid bankruptcy, you should consider the following:
How many other creditors do you have, and are you current on those bills?
If you have fallen behind on debt this may be caused by a temporary situation, such as a medical issue or a short-term job loss. In many cases, you may be able to make arrangements with your creditors to get back on track; however, if your debts are taking up more than 25% of your net income, it is very likely that you may not be able to get caught up on your debt. At this point you may want to talk to a non-profit credit solution organization such as Lutheran Social Services of Minnesota. They help people all over the US and assist at negotiating payment plans based on reduced interest rates with participating creditors. This can be an amazing solution and may keep you from having to file for Bankrutpcy. WARNING. Some creditors do not participate and so you will have to deal with those creditors directly. If the budget they have created for you does not leave enough to pay your regular monthly bills and expenses, you may need to consider either a chapter 7 or 13.
Many of my clients over the years have attempted to avoid bankruptcy to avoid messing up their credit. This is understandable, since a good credit score can be the gateway to saving money long term on mortgage and car loans. Some people are concerned because they may want to start a business. You should also ask yourself how much it will cost to save your credit.
How much secured debt do you have, and does it eat up all of your take home pay?
Often times people will have too many monthly payments on secured loans. Ask yourself how many vehicle loans do you have in your household? Can you really afford the car payment that you have? Could you downgrade or live without one vehicle? Naturally these are all questions worth asking when you are not able to pay your monthly bills an living expenses. If you want to keep all of your secured loans, you may need to file for bankruptcy. In some circumstances it will be possible to keep all of your secured loans and discharge your credit card debt. Sometimes if you are filing a chapter 13 case for whatever reason, you may not be able to continue to pay on loans for non-essential or luxury items unless you pay your credit card and other unsecured debt. You should consult with a bankruptcy attorney for more information.
How much total unsecured debt do you have, whether that is in credit cards, medical bills, personal loans, or payday loans?
If you have debt that does not amount to at least $8,000.00 many attorneys will not represent you in a bankruptcy. Some firms even require you to have $10,000.00 in debt. This is not because the bankruptcy code has a minimum debt limit, but because the cost of filing a bankruptcy ranging from $1500 – $2500 for individual filers, and it often does not bring you much value to file when your debt could be handled another way or you may in fact incur more debt. Also, and the bankruptcy code states that you can only file a chapter 7 once ever 8 years which means that you want to make sure that you do not misuse this opportunity.
How long will it take you to pay back your unsecured debt, and will the time it takes justify preserving your credit score?
I think that if it is going to take you longer than 5 years to pay off your debt at current or negotiated rates, then you should consider filing a chapter 13 bankruptcy rather than using a debt negotiator or credit counseling agency. In a chapter 13 bankruptcy, you will pay your disposable income (the amount left over after payroll deductions and your reasonable and necessary living expenses as determined by the court) over a five year period of time. That amount could be only a portion of your unsecured debt, or all of your unsecured debt. In most cases, you do not pay any interest on the unsecured debt, unless you are considered solvent (your non-exempt assets exceed your unsecured debt). There are costs for a chapter 13, but all in all
I like to tell people that If your main concern is preserving your credit, what are you planning to use your good credit for? If you are looking to buy a house in the next several years you will also need a down payment and a good debt to income ratio. Sometimes filing a bankruptcy is a lot faster way to improve your credit.
How long will it take you to repair your credit after bankruptcy?
Here is a loan calculator to help you figure out how long it would take to pay off your loans and credit cards.