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Comparison Chart

Wondering what options besides bankruptcy are available for resolving your debts? Use this handy chart to compare alternatives.

CHAPTER 7 • Below-median debtors with at least $8,000 to 10,000 in dischargeable debt (typically credit cards, medical bills, utilities)
•Above-median debtors who can beat the means test
• Two to three weeks pre-petition preparation; longer, if debtor needs time to pay a fee

• Can be done more quickly in cases of emergency

• Once filed, court process takes about 90 days

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• My firm can usually match any other attorney’s fee

• Quick fresh start
• Stop garnishment and levy and avoid 1099 (tax document) for canceled debt
Loss of nonexempt assets (which only happens in about 5% of cases and can be minimized or avoided with good legal advice) • Reset at about a 600 score within a year
• Get a mortgage in two to three years
CHAPTER 13 • Stop sheriff’s sale and cure arrears
• Above-median debtors who cannot beat the means test
• Pay off priority debts
• Wipe out marital obligation (other than support)
• Debtors with nonexempt assets that they want to keep
• Debtors who’ve filed Chapter 7 within last four to eight years
Three to five years • Starts at $2,900 plus fees
• Minimum of $500 down
Fees don’t need to be paid in full prior to filing It takes three to five years to start rebuilding credit • Similar to Chapter 7, with the caveat that it is difficult, though not illegal or impossible, to procure credit while in Chapter 13
• You really don’t start rebuilding until you’re done
DEBT SETTLEMENT (BANKRUPTCY ALTERNATIVE) • Debtors with one or two major debts, perhaps disputed
• Debtors with reasons not to file Chapter 7, such as nonexempt assets or too much income
Two to three months: You’ll typically start with the biggest ones first; the general rule is that old debts settle for 50 cents on the dollar $500 to $1,000 for one creditor, less for additional creditors Can sometimes avoid bankruptcy • To settle, you still have to pay the creditors
• Can exceed the cost of bankruptcy
• It’s not always successful
• You can get 1099’d for forgiven debt
Will still affect credit about the same as bankruptcy
LETTERS TO CREDITORS (BANKRUPTCY ALTERNATIVE) Debtors on Social Security It takes about six to 12 months for calls and bills to stop $750 for the first 90 days, then, at client’s option, $375 per 90 days thereafter • Less expensive than bankruptcy
• Sometimes referred to a “poor person’s bankruptcy”
• No paperwork to fill out
• No court to appear at
• Not as effective as bankruptcy
• Creditors can sue, try to levy bank accounts
• Creditors can send 1099s
• Judgment creditors can get an order to disclose assets and a warrant if the debtor fails to abide
• Seven to 10 years
• The idea is that the debtor will not likely have much need for good credit
• People who have been convinced that bankruptcy is a bad thing
• See also Debt Settlement, above
• Can take five years
• Typically implode after about two years
• Can cost thousands
• Fees paid first
• Additional fees upon settlement
Good question • Creditors can still sue you and get a judgment enabling garnishment of wages and/or bank levy
• You can get 1099’d
• Operators of these services are often not licensed in the state of Minnesota
Even if successful, you won’t start to rebuild until you are all done
NONPROFIT CREDIT COUNSELING (FAMILY MEANS, LUTHERAN SOCIAL SERVICES) People with high income (or nonexempt assets) who can’t file Chapter 7 and would likely have to pay all their debts in full in Chapter 13 Five years Nominal; just pay the debts back • They will handle calls from your creditors
• They can be successful in getting creditors to waive or substantially reduce interest
• They will also honestly tell you if you really belong in bankruptcy, unlike a for-profit debt resolution service
• It takes five years to rebuild
• You still pay the debts back
Some creditors may drop out
• Your credit will be bad for several years since the creditors are reducing interest
• You won’t really start rebuilding until you are done
DEBT CONSOLIDATION People with good credit and nominal debt or high income As long as it can be done, e.g., a second mortgage can be a 30-year note Basically nothing – you are paying the debt, hopefully with less interest • Can preserve credit
• Can lower interest
• It takes a bite out of cash flow, especially if done by way of a 401(k) loan.
• Additional payments can be a stressor on the budget
• If the consolidation loan was taken out with help from relatives, that can cause preference if a bankruptcy becomes necessary
Possibly not applicable
DO NOTHING • Debtors on Social Security
• Procrastinators
• Self-employed debtors with few assets who can live on cash and are hard to collect against
Endless, until you do something about it Nothing, until you do something about it or start getting garnished and levied and charged bank fees It’s easy, you don’t need to do anything.
It’s possible that creditors will give up and let the statute of limitations pass (typically six years) without using, then the debt goes away)
Eventually creditors will get judgments, garnish wages and levy bank accounts You will wallow in bad credit until you act to move forward