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Brief Background

Options Comparison Chart

Here is Chart which outlines the Pluses and Minuses of the Informal and Formal Strategies to solving your financial problems. This is the only Chart of its kind and we have to discuss and explain it to you because most clients still have many questions about it due to the fact that it is so unique. This Chart is not intended to be a definitive presentation on the pluses and minuses of the 4 major options and you have to discuss your case with an attorney to determine your pluses and minuses.

Debt Management aka Credit Counseling

Option #1

+ (Pluses)

• Might obtain a good credit score
• Private
• Can be sued but less likely
• Avoid Bankruptcy
• 100% repayment

– (Minuses)

• Might not obtain a good credit score
• Most Expensive Option
• Can be sued
• Low rate of Completion of DM Plans-50% est
• 100% repayment-higher monthly payment than DS- 60 months; you still pay interest on the debt
• Some Creditor Harassment
• No Automatic Stay against Creditor as in Bankruptcy

Debt Settlement aka Debt Negotiation

Option #2

+ (Pluses)

• Private—No public disclosure of personal information. No public hearings
• Avoid Bankruptcy
• Less Expensive than Debt Management or Credit Counseling -Smaller total pay-out
• Lower Monthly Payment than Debt Management or Credit Counseling. You aren’t paying interest on the debt.
• Can be preferable to Chapter 13 where Trustee insists on a 100% dividend to unsecured creditors.
• Might have a lower monthly payment than in Chapter 13 Bankruptcy
• Payment in full on debts versus pro rata payments in Chapter 13-more debts are settled quicker.

– (Minuses)

• Income Taxes—cancellation of debt can be ‘imputed income’ but not if your are insolvent
• Credit Score will be poor during the entire program
• Interest, penalties, late fees continued to run
• Credit Harassment more likely than Debt Management
• Doesn’t Stop Law Suits or garnishments
• 24–60 months to complete Debt Settlement Plan
• Low rate of completion
• No Automatic Stay against Creditors as in bankruptcy

Debt Cancellation (Chapter 7)

Option #3

+ (Pluses)

• Fast 90 days debts are discharged
• Least Expensive Option
• Passing Credit score can be obtained faster than DS
• 12–14 months to a passing credit score
• Automatic Stay against all Creditors

– (Minuses)

• Embarrassment
• Other Psychological issues—feeling of failure
• Remains on credit report for 10 years
• Debt Settlement might be more preferable than a Chapter 13
• Chapter 7 might not be available due to income and expenses, can’t pass Means Test (try test here), assets might not be exempt, previous filing might be a bar.

Debt Reorganization (Chapter 13)

Option #4

+ (Pluses)

• Stop Foreclosure and save home
• Stop Repossession of Car
• Possible to eliminate 2nd mortgage
• Possible to reduce monthly car payment
• Automatic Stay against creditors and lawsuits
• Possible to repay credit card debt with no interest
• Possible to repay as little as 10% of credit card debt and no interest
• Possible to repay tax debt without interest
• No spending money on luxury goods and services
• If self-employed, you have to make all payments to Chapter 13 Trustee
• Can spread mortgage arrearage over a 5 year period.
• Possibly can reduce car payment and use the savings to pay on mortgage arrearage
• Can handle debt in ways a Chapter 7 can’t handle the debt.

– (Minuses)

• 3–5 Year Debt Management Plan
• Budget Discipline
• Public Disclosure of Information
• Multiple Court appearances—at least 2
• No Discharge of Debts for 3–5 years
• Might have to repay credit card debt with interest
• Possibly might have to repay 100% of credit card debt + interest
• If case is dismissed, all taxes could still be due plus accumulated interest
• No spending money on luxury goods and services
• Court ordered wage withholding if you are an employee, once Debt Management Plan is confirmed.
• Chapter 13 Trustee can monitor your finances and tax refunds and claim tax refunds
• Trustee can insist on making mortgage arrearage payments over 3 year period
• Could stretch out for a longer period of time your car payments
• More expensive than Chapter 7
• Considerable documentation is required for all of your finances