There’s no question about it: Bankruptcy is one of those words that people don’t like to hear. Most avoid the topic at all costs based on the perception that filing for bankruptcy means calling it quits and giving up on your future. Attorney Morley Diment of Diment & Associates, shares some of the differences between Chapter 7 (what most people think bankruptcy means) and Chapter 13 (an entirely different thing).
On average, over 61% of bankruptcies each year are filed under Chapter 7. For individuals in the direst of circumstances, like being unemployed or dealing with a serious illness, Chapter 7 makes sense. For people who experience times when they can’t afford their bills, the strongest and most efficient option is a Chapter 13 bankruptcy.
WHAT’S THE DIFFERENCE?
Chapter 7 is for people who have limited assets and no real hope of repaying their obligations. Chapter 13 is a much broader tool and can help people with a range of issues. It could be a reduction in hours at work or a job change that causes you to no longer be able to afford your bills. Maybe you received an unexpected tax bill at the end of the year, or perhaps you’ve simply fallen behind on your house. Regardless of the cause, if you have consistent income and are struggling to keep up—consider a Chapter 13. Unfortunately, people in these circumstances often turn to lenders or debt relief companies seeking consolidation loans or settlements.
Chapter 13 works like a consolidation plan and can help people who have fallen behind on things like house and car payments, child support, or taxes.
Cases last for up to five years and come with many benefits like a single payment each month, substantially reduced interest (sometimes 0%), reduced total balances, and avoidance of debts that are old or violate state and federal law. The greatest benefit is that it often improves their credit over time during the case. In fact, people can even purchase houses and cars during their case with the approval of the Court.
For most, the choice is either debt relief companies offering settlement plans or Chapter 13 bankruptcy. It can be difficult to distinguish between these options, and most choose to try a settlement because they believe it will be better for their credit than a bankruptcy. This is simply not true.
Structured settlements often result in payment delinquencies being reported on your credit, impacting the score immediately and will show that you “settled for less than full repayment”. This flag will inform everyone who looks at your credit for the next 10 years that the debt was not actually paid as agreed.
Worse yet, debt settlements are totally reliant on all the creditors accepting the settlement. All it takes is one creditor refusing to settle and the whole plan falls apart. And don’t forget the cost —these companies generally charge 40% of the amount they save you in the settlements. All of this comes with no protection because this tactic is completely reliant on the creditors playing along.
Chapter 13, on the other hand, comes with the full protection of the federal court system. As soon as the case is filed, a court order comes into effect that prevents creditors from acting against the person who filed. This stops lawsuits, judgments, garnishments, foreclosures, repossessions-—even harassing debt collection calls.
For as long as the case goes on (up to five years) the creditors are not allowed to directly contact the person that filed.
Even better, creditors don’t have the option to just disagree with the plan. They can file objections to the plan, but those objections are strictly limited to issues where the plan fails to meet the guidelines required by the Bankruptcy Code. In other words, creditors are forced to accept a plan that follows the rules. As for cost, most cases are filed with attorney fees paid through the plan, and the Court determines if the fees are fair for the case before they are paid to the attorney.
If you’re curious if bankruptcy is right for you, call the experienced lawyers at Diment & Associates. They can represent you and help restructure your financial life to get the fresh start you deserve. Diment & Associates offers free consultations to 225 readers.
Visit dimentfirm.com/225 or call 225.341.7433 to schedule.