Are you buried with too many bills and no money left over at the end of the month? While we all feel a moral obligation to repay our debts, what happens when we don’t have enough money to juggle it all? Getting out of debt is the goal. As soon as possible of course. The harder decision is choosing the best path to suite your goals. The choices are few: pay in it full as normal; debt settlement; debt consolidation loan (aka “borrow more money”); or consider a bankruptcy? Aside from paying debts as normal, this article will give you a comparison of your options. We’ll explore the various costs and time associated with each and other important considerations. Let’s get started.
This plan requires you negotiate and settle your debts with each creditor separately to pay less than the full amount. If you’re trying to negotiate a payment plan, then you’re not likely to get a significant portion of the balance reduced. A lump sum settlement always gets you a lower settlement, so be sure to have money set aside before calling creditors. Don’t be surprised if you get an IRS 1099-c cancellation of debt form. That’s because debt forgiveness becomes income to you and the IRS wants to collect taxes on that. This plan requires money.
Consolidating debts requires either available credit or approval of a new loan. If you’re being declined, then this option is not a possibility for you. You’re simply taking all of your debt and putting it on a single line of credit or through some balance transfer option. It’s great if you can get 0% interest for an introductory period because that will buy time. Then what?
The Bankruptcy Code that applies to consumers falls under either Chapter 7 or Chapter 13. Most people are familiar with the liquidation bankruptcy under Chapter 7 of the Bankruptcy Code. The stories about how people lose their stuff (known as “assets”) in bankruptcy is likely in a liquidation case. But did you know that you can make a payment plan in bankruptcy? It’s true. Under Chapter 13 of the Bankruptcy Code, you can make a payment plan and set the terms. Well almost.
Let’s start with the superpowers hidden within bankruptcy’s protections. Filing for bankruptcy protection can keep your car from getting repossessed, stops evictions, foreclosures, wage garnishments, and lawsuits through the Automatic Stay under 11 U.S.C. §362, which occurs immediately upon filing a case. Now you’re back in control of your money.
In Chapter 13 you’re proposing a repayment plan based in part by your income and expenses. All debts are considered in the payment plan, while some debts can be paid outside the bankruptcy case like car payments. After paying certain debts in full like mortgage arrears and taxes, the remainder unsecured creditors may be paid less than 100% of what you owe. Sometimes they get nothing at all. This acts very much like a debt settlement plan when the court grants a payment plan of less than 100% to all creditors. Add to that the fact that creditors no longer enjoy added interest, save for the IRS and secured debt like a car or home loan.
Ordinary credit card debt is reduced to rubble when interest is removed. Even better is a plan that proposes anywhere from 0% to 100% of what you current owe. So, if your current plan won’t protect you from law suits or requires longer than 5 years, it’s time to talk to a bankruptcy attorney who handles Chapter 13 payment plan bankruptcy cases. You can’t afford debt.