Debt Resolution Comparison Chart
| Typical Application | Method of Debt Resolution | Length of Process | Cost | Advantages | Disadvantages | Effect on Credit |
|---|---|---|---|---|---|---|
| Chapter 7 | • Below median debtors with at least $8-10,000 in dischargeable debt (typically credit cards, medical bills, utilities) •Above median debtors who can beat the means test |
• 2-3 weeks prepetition preparation, longer if debtor needs time to pay a fee
|
* For a quote, complete the 60-second analysis. • We can usually match any other attorney fee |
• Quick fresh start • Stop garnishment, levy, and avoid 1099 (tax document) for canceled debt |
Loss of nonexempt assets (which only happens 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 2-3 years |
| Chapter 13 | • Stop sheriff’s sale and cure arrears • Above median debtors who cannot beat the means test • Pay off priority debts • Wipeout marital obligation (other than support) • Debtors with nonexempt assets that they want to keep • Debtors with prior chapter 7 within last 8 years, but more than 4 years |
3-5 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 3-5 years to start rebuilding credit |
|
| Debt Settlement (bankruptcy alternative) | • Debtors with 1-2 major debts, perhaps disputed • Debtors with reasons not to file 7, such as nonexempt assets or too much income |
2-3 months. We typically start with the biggest ones first. The general rule is that old debts settle for 50 cents on the dollar | $500-$1,000 for one creditor, less for additional creditors | Can sometimes avoid bankruptcy | • To settle, you still have to pay the creditors • Can exceeds 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 6-12 months for calls & 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 debtor fails to abide. |
• 7-10 years • The idea is that the debtor will not likely have much need for good credit |
| For-profit Debt Resolution Services |
• People who have been convinced that bankruptcy is a bad thing • See also debt settlement above |
• Can take 5 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 |
| Non-profit 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 a chapter 13 | 5 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 401k loan. • Additional payments can be a cause 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, 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, levy bank accounts | You will wallow in bad credit until you act to move forward |
| Typical Application | Length of Process | Cost | Advantages | Disadvantages | Effect on Credit | |
|---|---|---|---|---|---|---|
| Chapter 7 | • Below median debtors with at least $8-10,000 in dischargeable debt (typically credit cards, medical bills, utilities) •Above median debtors who can beat the means test |
• 2-3 weeks prepetition preparation, longer if debtor needs time to pay a fee
|
* For a quote, complete the 60-second analysis. • We can usually match any other attorney fee |
• Quick fresh start • Stop garnishment, levy, and avoid 1099 (tax document) for canceled debt |
Loss of nonexempt assets (which only happens 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 2-3 years |
| Chapter 13 | • Stop sheriff’s sale and cure arrears • Above median debtors who cannot beat the means test • Pay off priority debts • Wipeout marital obligation (other than support) • Debtors with nonexempt assets that they want to keep • Debtors with prior chapter 7 within last 8 years, but more than 4 years |
3-5 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 3-5 years to start rebuilding credit |
|
| Debt Settlement (bankruptcy alternative) | • Debtors with 1-2 major debts, perhaps disputed • Debtors with reasons not to file 7, such as nonexempt assets or too much income |
2-3 months. We typically start with the biggest ones first. The general rule is that old debts settle for 50 cents on the dollar | $500-$1,000 for one creditor, less for additional creditors | Can sometimes avoid bankruptcy | • To settle, you still have to pay the creditors • Can exceeds 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 6-12 months for calls & 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 debtor fails to abide. |
• 7-10 years • The idea is that the debtor will not likely have much need for good credit |
| For-profit Debt Resolution Services |
• People who have been convinced that bankruptcy is a bad thing • See also debt settlement above |
• Can take 5 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 |
| Non-profit 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 a chapter 13 | 5 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 401k loan. • Additional payments can be a cause 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, 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, levy bank accounts | You will wallow in bad credit until you act to move forward |
Disclaimer
Please be advised this Web site has been prepared for general information purposes only. The information on this Web site is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. Also, the law may vary from state to state, so that some information in this Web site may not be correct for your jurisdiction. Finally, the information contained in this Web site is not guaranteed to be up to date. Links to third-party web sites are provided for convenience and for general information purposes only. We do not have control over the content or privacy settings of sites linked to this site. Please refer to the owners privacy policies for more information on their specific policies. E-mails or online submissions to Timothy Casey Theisen, P.A. do not constitute a client-attorney relationship. Your information is nevertheless considered confidential and will not be shared with third parties. Timothy Casey Theisen, P.A. is not responsible for information provided by linked sites.