You may have experienced a financial hardship (potentially from COVID) and are considering your options.
Thankfully, bankruptcy is a legal option that provides debt relief and hopefully less stress and more sleep. Let's go through 3 things that are important to know.
Bankruptcy is complicated. When I decided to write this article, I wanted to provide the following important things to understand about bankruptcy.
I attempted to be concise, but you will have a question. I have my contact me here and at the bottom. I do my best to respond within 2 hours.
Before we begin, let me spend 2 minutes explaining the different types most common types of consumer bankruptcy.
Chapter 7: Must qualify. May liquidate assets (not often vehicles). Less expensive than Chapter 13. Receive discharge of debt generally in about 90 days. On credit report 10 years.
Chapter 13: Most qualify. Often does not liquidate assets. More expensive than Chapter 7. Receive discharge of debt generally in 3 or 5 years. On credit report for 7 years.
Let’s get into the details.
Many people prefer a Chapter 7 bankruptcy because it’s less expensive and much faster to attain debt relief. The challenge is that you have to qualify based on means-testing. The short way to describe this is that it’s a way of the government trying to determine whether you make enough to pay back some of the debts in potentially a Chapter 13.
Your income has to be below a certain median threshold (in most conditions) that takes into consideration your household size and your location (i.e. your state).
This also can be tricky, so we developed a Chapter 7 qualification calculator below for your zip code to estimate whether you qualify below. It provides: 1) A qualification estimate. 2) A cost estimate based on your zip code 3) Pros and Cons and 4) Local reputable options.
Quick side note: If the calculator states “Maybe”, this is often because you are up to $20,000 above the median. Can you still qualify for Chapter 7? In certain situations. We build an above-median Chapter 7 calculator that uses bankruptcy forms to go a little deeper to estimate whether you still may be able to qualify for Chapter 7.
If you do not qualify for a Chapter 7 or do not want to do a Chapter 7 because you may own a great deal of equity or cash or want to avoid foreclosure, you may look into a Chapter 13 bankruptcy.
A Chapter 13 bankruptcy is a monthly payment based where the court tries to determine whether you have the monthly disposable income to pay back some money to unsecured creditors.
There are a couple of bankruptcy forms to help determine what your plan payment will be. We build the Chapter 13 Plan Payment Calculator below to help you estimate. This calculator also looks at other options to help you compare.
The question to ask is whether the estimated Chapter 13 plan payment is affordable. One important thing to note is that the Chapter 13 plan payment may seem very high because it includes mortgage, auto, and secured loan payments.
You got to this point, and you may be considering a Chapter 7 or Chapter 13 and thinking, “Well, what else is out there?”. I am not going to spend much time on mortgage refinancing or debt consolidation loans as I’d like to focus on more debt relief type options. We do include these as comparison options in the calculators above if you select them to compare on the final screen.
Also, I can speak for days on each of these options, but as you were searching for bankruptcy, I’ll leave these sections short.
Debt settlement companies negotiate a lower owed amount with your creditors. It can be less expensive than Chapter 13 and is almost always less expensive than Debt Management. There are negative credit score implications, but this is often the case with most debt relief options.
Debt management companies negotiate a lower interest rate with your creditors. Credit counselors generally work best with high-interest rate credit card debt as many personal loan lenders won’t work with them. Higher interest rate accounts work better because they are trying to negotiate lower interest rates to save you money each month.
I hoped that this article was concise and helpful. I don’t want to overload you with information, but I wanted you to understand how things work. Please contact me or text/call at (833) 272-3631 if you have any questions.
Also, if you are unsure what to do at this point, we just developed a free debt freedom portal that helps you continually estimate the best path to debt freedom. Message me above if you’re interested, and I’d be happy to provide access.