At Resnick & Moss, we receive many questions regarding bankruptcy. Declaring bankruptcy as an individual is not an easy decision or process. It is important to be well informed about bankruptcy and alternative solutions to your debt problems. Individuals most commonly file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy is when a debtor has all debts eliminated without paying creditors. The debtor files a case in federal bankruptcy court, there is a meeting of creditors approximately 30 days after filing, and if the trustee has no issues to investigate and files a no asset report, then the court issues a Chapter 7 discharge approximately 60 days later. The borrower/debtor is excused from the debt upon receipt of a Chapter 7 discharge.
Chapter 13 bankruptcy is when the debtor’s lawyer and the creditors negotiate a payment plan to repay debt at a lesser percentage than the full amount owed. The payment plan lasts between three and five years. During the time of the plan, the debt does not collect interest. The amount of money to be paid from the debtor to the creditors is calculated by taking the debtor’s income minus allowable monthly expenses. All debts that remain at the end of the payment plan time are wiped away.
Many people do not want to declare bankruptcy because of the stigma, complicated process and legal cost. Thus, it is important to know that there are alternative solutions to declaring bankruptcy. Another way to solve debt problems is to settle with creditors out of court. The debtor and creditor negotiate a sum, which the debtor will pay the creditor in full satisfaction of the debt. Often times, the creditor excuses some of the debt owed. The benefits to this option are vast. Settling out of court reduces legal costs. Furthermore, people often associate a negative stigma with bankruptcy and do not want to affect their credit rating. Although there will be some damage done to a credit record when debt is excused by creditors, it does not have as much of a negative impact as filing for bankruptcy. Moreover, during a bankruptcy case, the debtor must disclose all financial information. Settling the debt with your creditor keeps your personal finances private instead of exposing your financial issues publicly in bankruptcy proceedings. Lastly, avoiding court is less complicated, involves fewer people and is less intimidating. When filing for bankruptcy, the debtor must deal with a bankruptcy trustee, opposing attorneys and the court. On the other hand, settling the debt outside of court will avoid interaction with unnecessary third parties.
For further information regarding bankruptcy options, contact Resnick Law, P.C at 248-642-5400