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Bankruptcy or Debt Settlement, Choose Wisely

If you are considering Bankruptcy instead of a Debt Relief Plan, make sure you are aware of the advantages and disadvantages of your decision. If Bankruptcy is the only option for you, then you should seek legal advice from a bankruptcy attorney.

The following information is not intended to be legal advice, rather it is just an overview on the basics of the 2 most common bankruptcy types.

There are 2 different types of bankruptcy that a client may consider: Chapter 7 or Chapter 13. On October 17, 2005, the bankruptcy code was revised by the “Bankruptcy Abuse Prevention and Consumer Protection Act.” [BAPCPA] This revision was intended to eliminate the option of Chapter 7 Bankruptcy for people who could afford to repay some of their debts. Now, in order to qualify for Chapter 7, a client’s expenses will be examined using the government’s “means test” which was introduced as part of the 2005 revision to the law. This test analyzes a client’s income and expenses using national and local living standards, and the median income for the client’s state.

Chapter 7: “No asset” bankruptcy-You do not have to pay any portion of your debts.

To qualify for Chapter 7, first, a client must obtain Consumer Credit Counseling from an organization approved by the United States Trustee’s office within 180 days of filing. The counseling is intended to provide the client with alternatives to filing for bankruptcy. A client must pass the “means test.” If a client has a certain amount of disposable income left monthly, then they will not qualify for Chapter 7 and will only qualify for Chapter 13.

Most bankruptcy attorneys require you to pay their fees upfront in full before they will process your bankruptcy. Fees vary by state.

A bankruptcy will remain on your credit report for up to ten (10) years.

Chapter 13: “Repayment Plan” bankruptcy – You must repay a portion of your debts. Chapter 13’s can be costly.

The court will analyze your income and expenses and set the client upon a repayment plan with their creditors typically for 3 to 5 years.

The bankruptcy Trustee monitors and administrates your payment plan.

If you cannot file a chapter 7 bankruptcy, you may be much better off entering a valid Debt Settlement Program administrated by a law firm. The debt settlement program will not be listed on your credit report, you will not need to be involved with the courts, and chapter 13 is really a quasi court-ordered settlement program.

Additionally, You can regain your credit standing faster by avoiding bankruptcy.

Bottom line: You need to get the facts. You can get a free quote and consultation by contacting us at American Debt Enders.

Written By:
Steven Ciantro
Member National Association of Credit Counselors
American Debt Enders