It is a difficult time in America. You may be one of the millions of people who are trying to understand how to navigate bills each month. We all want to pay our bills, but often cannot.
Here’s what I will say: You are not alone. You have a best option out there. The most important thing for you is to know your options, the costs of those options, and the pros and cons. Here’s what I would like you to take away from this article:
- Understand Bankruptcy
- Understand Alternatives
- Know free resources such as a) Bankruptcy Decisioning Portal b) Bankruptcy Qualification Estimator c) Budgeting Template
- So, What Would I Do?
What is Bankruptcy?
In its simplest form, bankruptcy is a legal debt relief option that allows you to get relief from your debts. The debt that is often forgiven in bankruptcy is credit cards, medical bills, personal loans, payday loans, etc. that are not secured by an asset.
Your income and your expenses are evaluated to understand whether you can pay back any of the debt in a payment plan (Chapter 13 bankruptcy) or none at all (Chapter 7 bankruptcy).
What Are The Types Of Bankruptcy?
The most common types of bankruptcy are Chapter 7, Chapter 13, and Chapter 11. There is also a Chapter 12 bankruptcy that covers farm debt and commercial fishing debt, and a Chapter 9 and 15 that are less common.
We will spend the most type on Chapter 7 and Chapter 13 bankruptcy as those are the most common consumer bankruptcy, and it’s important that you know the differences.
How does Bankruptcy Work?
You generally would file a Chapter 7 or Chapter 13 bankruptcy. These are the two most common consumer bankruptcy types in the United States.
A Chapter 7 Bankruptcy is:
- Fast. Discharge in as little as 90 days.
- Less expensive.
- You may lose assets, but many do not because of bankruptcy exemptions. Can you keep your house in Chapter 7? Can you keep your cars, boats, RVs, etc.? You can estimate that here using a free bankruptcy exemptions calculator that uses bankruptcy exemptions in your county and state.
- Must qualify based on income, household size, and state. Estimate bankruptcy qualification and cost for free here.
- On Credit Report for 10 years.
A Chapter 13 Bankruptcy is
- Slower. Discharge often in 3 or 5 years.
- More expensive.
- You often keep assets.
- Monthly Payment Plan. Estimate payment amount here.
- No qualification as long as debt within limits.
- On Credit Report for 7 years.
Many people will go through a process where you estimate qualification, have a free bankruptcy attorney consultation, take the first online course provide documentation and file, attend necessary meetings, take the second online course, receive a discharge of your debt.
How much does bankruptcy cost?
You may wonder how you are expected to afford bankruptcy if you cannot afford your bills. You are not alone. Most bankruptcy attorneys set up payment plans to help you afford bankruptcy.
The primary costs of bankruptcy consists of the bankruptcy attorney fee and the filing fee. The filing fee is around $300-$400, and then the attorney fee can range quite dramatically based on numerous factors.
What I would recommend is to take the free bankruptcy attorney fee estimator that is an estimate based on your zip code if you’re interested to learn more about the all-in costs of bankruptcy.
What are Bankruptcy alternatives?
There are alternatives to bankruptcy. I am going to discuss the options below, but I like a free tool that does the analysis for you based on your own income and expense data. The free tool is Ascend’s free bankruptcy decisioning portal. The bankruptcy decisioning portal has calculators that show you the bankruptcy estimated cost for your zip code, pros, and cons, and the alternative options’ estimates costs and pros and cons.
Like I said above, one of the most important things is to know your options, the costs of those options, and the pros and cons, so you can make the most informed decision.
Let’s discuss alternatives starting from the least extreme:
Call Creditors and See What They Can do
If you are like me, you would like to find someone that doesn’t involve hurting your credit score. You may already know this is out of the question. If so, skip to the next one.
Often creditors want you to stay current on your debt, so they can still yield payments and interest from you. As such, it can be helpful to call all your creditors, explaining your situation to see what they will do for you.
Next, calculate the savings that all of the creditors can provide to see if you are now above water.
Debt Payoff Planning
You would do debt payoff planning in conjunction with your budget. The idea of debt payoff planning is to line up your debts and use the savvy, snowball, or avalanche debt payoff method to eliminate your debts one by one. You would coordinate these efforts with a budget. I have a free Google sheets budget template that you can use or there are so many free ones out there as well.
Debt Management
Debt management companies negotiate the interest rates of high credit card debt. Debt management is often best for those with high-interest credit card debt only (personal loans often won’t work with these companies) and can almost afford their debt as sometimes interest savings is not big enough.
My take? If you can almost afford the debt, call the credit card companies yourself before doing this option and paying the monthly fee.
Debt Settlement
Debt settlement companies negotiate the amount of your debt. This tends to result in more savings than debt management. There are pros and cons to this option, so research carefully. I wrote a review article that highlights one of the few companies I like in this space.
What Would I Do If I Were You?
Personally, I do not know your unique situation, so I cannot give you specific advice. That said, I would recommend taking a free bankruptcy calculator to understand costs, pros, and cons, and alternatives to make the most informed decision.
Lastly, I would be happy to hear what you’re going through and answer questions if you’d like to email me at savedbythecents@gmail.com. I generally will respond within hours when I am not hanging out with my 3 young daughters.
