Debt Resolution Comparison Chart
| 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 |
• One month prepetition preparation, longer if debtor needs time to pay fee •Court process; 90 days |
* 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 • Wipe out 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 | Similar to chapter 7, with the caveat that it is difficult, though not illegal or impossible, to procure credit while in the 13 |
| 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 | $600 for the first 90 days, then, at client’s option, $300 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 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 suing, 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 |
• One month prepetition preparation, longer if debtor needs time to pay fee •Court process; 90 days |
* 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 • Wipe out 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 | Similar to chapter 7, with the caveat that it is difficult, though not illegal or impossible, to procure credit while in the 13 |
| 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 | $600 for the first 90 days, then, at client’s option, $300 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 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 suing, 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 |
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