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How To Avoid Bankruptcy and What Are The Alternatives?

If a you are considering Bankruptcy instead of a Debt Settlement Plan, be sure you are aware of the advantages and disadvantages of your decision. If you cannot avoid bankruptcy as an option, then you should seek legal advice from a bankruptcy attorney.

The following information is not intended to be legal advice; rather it is just an overview on the basics of the 2 most common bankruptcy types. Remember, avoiding bankruptcy presents many other alternatives to you, use them to your advantage.

There are 2 different types of consumer bankruptcy that you may consider: Chapter 7 or Chapter 13. On October 17, 2005, the bankruptcy code was revised by the “Bankruptcy Abuse Prevention and Consumer Protection Act.” [BAPCPA] This revision was intended to eliminate the option of Chapter 7 Bankruptcy for people who could afford to repay some of their debts. Now, in order to qualify for Chapter 7, your expenses will be examined using the government’s “means test” which was introduced as part of the 2005 revision to the law. This test analyzes your income and expenses using national and local living standards, and the median income for your state.

Chapter 7: “No asset” bankruptcy – You do not have to pay any portion of your debts.
  • To qualify for a Chapter 7, first a client must obtain Consumer Credit Counseling from an organization approved by the United States Trustee’s office within 180 days of filing. The counseling is intended to provide the client with alternatives to filing for bankruptcy.
  • A client must pass the “means test.” If a client has a certain amount of disposable income left monthly, then they will not qualify for Chapter 7 and will only qualify for Chapter 13.
  • Many bankruptcy attorneys require you to pay their fees up front in full before they will process your bankruptcy. Fees vary by state.
  • A bankruptcy will remain on your credit report for up to ten (10) years.
Chapter 13: “Repayment Plan” bankruptcy – You must repay a portion of your debts.

  • The court will analyze your income and expenses, and set the client up on a repayment plan with their creditors typically for 3 to 5 years or even longer.
  • The bankruptcy Trustee monitors and administrates your payment plan

Chapter 7 and Chapter 13 Are The Most Common Filing Options

In summary, if a client may not qualify for Chapter 7 based on the “means test”, a debt settlement plan could be beneficial because it will not be listed on their credit report. A Chapter 13 may be the only type a client would qualify for, and as seen above, the client will be entering into a quasi- Debt Settlement Plan anyway. Only this plan is monitored by a judge and a court of law; never mind that you will now have a bankruptcy on your record!

If you would like to learn more about bankruptcy please read an informative article by clicking here.

Superior Debt Relief is a Debt Relief agency. Our Debt Settlement Company works on your behalf to secure debt-free living with a number of services, including: Credit Card Debt Relief, Debt Consolidation Program, Debt Negotiation, Debt Management Benefits and Consumer Credit Counseling Service.

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