Chapter 7 or Chapter 13?

December 15th, 2011, by

Q: If I owe $28,000 in credit card debit, but only gross $40,000 a year, should I consider filing Chapter 13?

Las Vegas, NV

A: You certainly do have a lot of credit card debt, compared to your income and, as you point out, that’s gross not net (meaning what you get to take home).

Despite the amount of debt you have, I’m not sure if filing for a Chapter 13 is the answer or, for that matter, filing a Chapter 7. With a Chapter 13 bankruptcy, you set up a plan with the bankruptcy court to pay back your debts over time. Under a Chapter 7 bankruptcy, you are able to wipe out unsecure debts. But, before you can file for a Chapter 13 or a Chapter 7, you have to get bankruptcy counseling from a credit counseling agency approved by the United States Trustee’s office. The good thing about this requirement is that a counselor can help you determine if it’s possible to avoid filing for bankruptcy, which is a serious step and will stay in your credit files for 10 years. That will, in turn, significantly bring down your credit scores and impact your ability to get good credit deals.

Instead of filing for bankruptcy, you might consider getting on a debt repayment plan, which is similar to a Chapter 13 without having the same impact on your credit scores as a bankruptcy filing. You can discuss this with the credit counseling agency.

So, get some help from a credit counseling agency. To find an approved agency in your area, go to the website of the U.S. Department of Justice U.S. Trustee Program and search for “Credit Counseling & Debtor Education.”

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Last modified: December 14, 2011 at 4:36 pm