What Debt Relief Options Should You Choose?

One of the hardest parts for us to figure out is what option is going to be best between bankruptcy and debt consolidation.

My name is Mike Ziegler. I’m the managing attorney for the Debt Fighters. We’re a Florida law firm focusing on helping consumers strategically eliminate serious debt.

In evaluating options, we look at a few different factors. First, we look at income. So particularly for Chapter 7 bankruptcy, where there’s no ongoing payment plan, you have to be under a certain income threshold. If you’re above that income threshold, then you may be looking at the Chapter 13 form of bankruptcy, which is a three to five year payment plan.

In comparing Chapter 13 bankruptcy payment plans to a debt consolidation plan, we look at a series of factors. First, we project what the Chapter 13 plan payment is. We compare that against a projected payment plan for a debt consolidation. Now, it’s important to understand that these payment plans work differently. When we’re calculating a payment plan in bankruptcy, usually we’re not negotiating with the creditors. We’re following a set of rules that are laid out under the bankruptcy.

While these rules are layered, in short, the way that the rules work is that we’re looking first at the amount of assets that the filer has. If filers have assets that exceed what the government perceives to be your essentials, then that can affect your payment plan under what’s called the liquidation test. Now, after we go through the liquidation test, then we look at the household income and we look at the recurring monthly expenses and see what’s left over at the month.

It is important to know that if you’re a married individual, you can file individually without your spouse. However, your spouse’s income usually will be considered for the purpose of calculating the payment plan in Chapter 13.
In debt consolidation, the system is a little bit different. Instead of following rules under the bankruptcy code, we are looking more at anticipated negotiations with the creditors. Now, one major difference between debt consolidation and bankruptcy is that when a bankruptcy is filed, Federal law creates the automatic stay. This is a fancy way of saying that collection companies can’t take any action against you while the bankruptcy is pending. During debt consolidation, for better or worse, there is no automatic stay. So for clients who may have more trepidation about having to participate in the legal process, bankruptcy may be more favorable.

So after weighing all these options, looking numerically at the projected best outcome and the different risks associated with each option, we make a recommendation on what option we believe to be in the client’s best interest.

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