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JoeLawyer
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Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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Bankruptcy versus Debt Consolidation. Which is better To

Customer Question

Bankruptcy versus Debt Consolidation. Which is better? To use a debt consolidation company to help get you out of the whole with substantial credit card debt, or filing a chapter 13? I would be unable to ffile a chapter 7 because my husband and I do not want to lose our house! Can I file a chapter 13 by myself, with my debts....?? or does it affect my husband.....? would if affect out house? Would I be better off, and pay a lower fee to a lawyer as opposed to what I would pay to a debt consolidation company?
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 5 years ago.
Hi Slance:

The question of whether debt settlement or Chapter 13 is better is really something that has to be made on a case by case basis. I can't tell you what I think regarding your particular case since that may constitute "giving legal advice," and we are not allowed to do that for a host of legal reasons I won't bore you with.

We can, however, provide information...

First of all, you do not necessarily lose your house because you file Chapter 7. Your house is only normally in jeopardy in Chapter 7 if (1) you have more equity than your State allows to you exempt (i.e. protect), since this may prompt the court to take the home and sell it to get the un-exempt equity, or (2) if you are behind on mortgage payments, since this may prompt the mortgage lender to foreclose. If mortgage payments are current and you do not have more equity than is allowed, then you can normally file Chapter 7 and simply reaffirm the mortgage and keep the house while discharging the other debts. You can see what amount of equity one can exempt in New York by going here:

http://www.bankruptcyinformation.com/NY_exemp.htm

If one has too much equity or is behind on payments, then that person may opt to file Chapter 13, which through the 3 to 5 year Chapter 13 Plan payments, the person can normally pay the mortgage arrearage and protect the un-exempt equity.

Regarding Chapter 13 vs. debt settlement: this is a tough call. Through debt settlement, you basically can wind up settling the credit card debt for around 40% of the balances, though if you use a debt settlement company you will have their fees on top of that amount. If you are solvent when the debts are settled, there may also be tax consequences since the IRS considers forgiven debt to be income.

In Chapter 13, you simply pay as much as you can afford for 3 to 5 years in your Chapter 13 Plan, and at the end of the 3 to 5 year Plan, whatever debt is unpaid is discharged and wiped out. So, you pay 5% or 85% in Chapter 13, depending on what you can afford.

So, Chapter 13 is normally cheaper than debt settlement, but also is a bigger hit on your credit score. Many people opt for the cheaper route rather than protecting their credit since they are usually suffering from bad credit after getting behind on credit cards anyway.

I hope this helps and a positive feedback is always appreciated if this was useful to you.

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.



Expert:  JoeLawyer replied 5 years ago.
For clarification:

Above, I said "In Chapter 13, you simply pay as much as you can afford for 3 to 5 years in your Chapter 13 Plan, and at the end of the 3 to 5 year Plan, whatever debt is unpaid is discharged and wiped out. So, you pay 5% or 85% in Chapter 13, depending on what you can afford."

What I meant is that you may pay 5%, you may pay 50%, you may pay 100%, etc., it doesn't really matter as long as you pay as much as you could afford. Whatever you cannot afford gets discharged.

Here's a really simplistic example: Say you look at your net monthly income and your net monthly reasonable and necessary expenses, and you determine you can afford to pay $300/mo to the court into your Chapter 13 Plan. Say you decide to go 5 years (60 months). $300 times 60 months equals $18,000.00. Of this $18,000, 7% or so will go to the Chapter 13 Trustee to whom you make payments as their statutory fee (this percentage varies but we'll use 7% for our example). This 7% fee drops the $18,000 down to $16,740. Say you are behind on your mortgage by $3,000, this will be paid through the Plan to catch up the mortgage, dropping the balance to $13,740. Say you are paying your attorney $2,000 through the Plan, this will drop the balance to $11,740. So, your unsecured creditors will get $11,740, and this may be 5% if you owe $234,800 in unsecured debt, or it may be 90% if you owe $13,044 in unsecured debt, it doesn't really matter. Unsecured debt means credit cards, personal loans, medical bills, etc.

Another thing to consider is that you may or may not qualify to file Chapter 7 depending on how much money you make based on the Means Test, go here to see how much you can make in your State based on your household size and gross income:

http://www.usdoj.gov/ust/eo/bapcpa/20081001/bci_data/median_income_table.htm

Note that these amounts get updated 3/17/09 I believe.

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.

Customer: replied 5 years ago.

Can u file Chapter 7 alone if you are married, or does it have to be jointly?

 

Also, would vehicles be lost?

Expert:  JoeLawyer replied 5 years ago.
You can file individually by yourself or jointly with your spouse, but all household income has to be counted for means test purposes even if you file alone.

Vehicles are not necessarily lost. Basically the same goes with them as with houses: if they are not worth more than you are allowed to keep based on your State's exemption laws, then they are safe from the court. If they serve as collateral for a loan, they are safe as long as you reaffirm or redeem the loan during the bankruptcy case.

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.

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