No debt relief program is a good fit for everyone.

There are many programs out there that claim to be able to help you get rid of debt. But before you commit to any of them, do your homework so you can make the best decision for you and your future.

Every debt relief option will affect your finances in different ways. Which one suits you will depend the type of debt you have, your current income and your financial goals.

In any situation, your debt relief plan should:

• Provide lasting, long-term debt elimination
• Protect you and your property while you work to get out of debt
• Be safe and effective so that you don’t go deeper in debt while trying to get out

Using this criteria, let’s take a look at two popular avenues for debt relief: Chapter 7 bankruptcy and debt settlement.

If you are struggling to keep up with massive credit card debt – or debts related to medical bills or personal loans – then you might have explored one of these areas.

Note: If you have some income and own lots of property you want to protect, then a Chapter 13 bankruptcy may be better suited for you.

Debt Settlement

May help: Credit card debt.

Won’t help: Any other type of debt, including debt related to: Medical bills, personal loans, payday loans, car loans, home mortgages.

How it works: In exchange for a fee or percentage of the amount you owe a credit card company, a debt settlement firm will “negotiate” with the company. Their goal is to get the company to accept one smaller lump payment for part of your debt and in return clear the remainder. During their “negotiations,” you will make regular, monthly payments to the company and your money will be stored in an account until you have enough to strike a deal with the credit card company.

Concerns: You must be very careful when dealing with a debt settlement firm. Federal and state regulators have taken action against debt settlement companies for deceptive, misleading and illegal business practices. Problems can also arise if your debt settlement firm goes out of business, as was the case with one Texas-based company. When they went under some customers lost the money they paid and had nothing to show for it. Also, debt settlement cannot protect you from lawsuits, and creditors may continue to contact you during the settlement process, which may take months or even years.

Bottom line: Can you afford to spend money on a debt settlement plan that might not work? Debt settlement firms don’t offer complete security or legal protections for your actions or your money. If this is the right path for you, make sure you are dealing with a reputable company, because otherwise you could spend lots of money and see little or no debt relief.

Chapter 7 bankruptcy

May help: Debt related to: Credit cards, medical bills, personal loans, payday loans.

Won’t help: Although Chapter 7 bankruptcy can protect home foreclosure and car repossession through the automatic stay, it may not be able to address debt stemming from secured debt, like a car loan or mortgage.

How it works: In order to file Chapter 7 bankruptcy you must first pass a means test, which takes a look at your income and debts. If you qualify, you will then begin the bankruptcy process, which mostly consists of filing the appropriate paperwork and documents with the courts. Your bankruptcy lawyer can help you prepare this paperwork and ensure that everything is turned in accurately and on time. In almost every case, you won’t need to appear in court and testify in front of a judge and jury. When you file, the automatic stay will kick in and stop all lawsuits, wage garnishments, repossessions and other collection efforts.

Part of this paperwork will outline your Chapter 7 bankruptcy exemption claims. Each state allows certain exemptions, or property protections. In almost all Chapter 7 bankruptcy cases, there is no sale of any kind of property.

Once your paperwork is filed and you complete the credit coursework, your bankruptcy is finished. The process is designed to work quickly. When you emerge, your debts will be eliminated, and creditors won’t be able to make any claims against you.

Concerns: If you recently filed chapter 7 bankruptcy you may not be able to file again right away. If you own large amounts of property that you want to keep, and depending on the exact laws in your state, you may be better off with a Chapter 13 bankruptcy. In order to file you must pass the Chapter 7 means test.

Bottom line: Chapter 7 bankruptcy was designed to provide swift, complete and legally safe elimination of unsecured debt. It can address multiple types of debt, stop lawsuits, wage garnishment and may even protect your home, car and other property.

Taking action against your debt

Even if you feel like your debt is out of control, you have options. There are actions you can take to get back your life.

The first step is information. This is your life and your future, so make a decision that’s best for you.

Speaking with a local Chapter 7 bankruptcy lawyer is a great way to get answers to your questions about all types of debt relief. A bankruptcy lawyer can explain the laws in your state and how they might impact you and your debt.

You can get started today by connecting, for no charge, with a local bankruptcy attorney. Simply complete the free case evaluation form on this page, and we’ll connect you with a lawyer near you right away.

For those who have been struck by short-term financial hardships like illness, job loss or significant unexpected expenses, Chapter 13 bankruptcy can be an effective way to reestablish financial stability. If you’ve been knocked off balance by a crisis, but have regular income with which to make monthly payments, Chapter 13 bankruptcy can provide a powerful safety net.

Chapter 13 bankruptcy combines the automatic stay feature with a debt restructuring plan and a 3-5 year payment plan for catching up on payments. These features, and extended property protection, make it an attractive option for people seeking to avoid repossession or stop foreclosure.

A Chapter 13 Bankruptcy Lawyer in Your Area Could Be Your Best Resource

The Chapter 13 bankruptcy process is detailed and complex. Making mistakes can mean the loss of the automatic stay, the rejection of a payment plan, or extensions and delays for the bankruptcy filer. If you’re not sure if Chapter 13 bankruptcy is the right choice for you, you should consider consulting a bankruptcy lawyer in your area.

If you do choose to file under Chapter 13 bankruptcy, your bankruptcy attorney will be able to advise you during your filing process and help you navigate the various filing requirements and deadlines involved. Your lawyer can make sure your proposed plan will leave room for regular expenses as well as payments and affirm that you’ve accounted for all your allowable expenses.
Chapter 13 Bankruptcy Cases: Pre-Filing Requirements

New legislation enacted in October, 2005 dictated that all those filing personal bankruptcy under Chapter 13 or Chapter 7 of the United States Bankruptcy Code must complete a Credit Counseling Briefing approved by the U.S. Trustee. When your bankruptcy lawyer files your bankruptcy petition, he will also file your Credit Counseling certificate.

Those who attempt to file bankruptcy without a Credit Counseling certificate may not be accepted, which can be disastrous. A dismissal might give creditors an opportunity to take collection action, including foreclosure proceedings and repossessions, since the automatic stay would not be in effect.

You can either ask your bankruptcy lawyer to direct you to an approved Credit Counseling agency or opt for the approved Credit Counseling briefing available online at Start Fresh Today.

The Process of Chapter 13 Bankruptcy

Chapter 13 bankruptcy cases officially start when the bankruptcy petition is filed. Most of the time, the court will enact the automatic stay immediately after the case is filed, which prevents creditors from making any collection efforts while the bankruptcy is pending or until the bankruptcy court gives further notice.

The bankruptcy court will then provide notice of the filing to all creditors named in the Chapter 13 petition, and assign a bankruptcy trustee to the case.

The court will send a Notice of Commencement of Case to the petitioner and all creditors named in the petition within approximately 15 days of the petition being filed. In this notice will be key information like deadlines for claims and/or objections from creditors and the details about the creditors’ meeting (date, time, location).

Schedules detailing the petitioner’s assets, debts, expenses and income have to be filed within 15 days of the case’s start. In many cases, these schedules are filed at the same time as the petition, but in emergency situations (as when a bankruptcy filer is trying to prevent repossession or foreclosure), they can be filed separately so that bankruptcy protection isn’t delayed by the collection of information.

The Chapter 13 repayment plan must also be filed within 15 days.

The Repayment Plan in Chapter 13 Bankruptcy

One of the main contrasts between Chapter 7 bankruptcy and Chapter 13 bankruptcy is that Chapter 13 involves neither liquidation of assets nor quick completion. Intended to allow those who are struggling financially to maintain ownership of their property, Chapter 13 filers develop a plan to catch up on their past due balances while staying current on new payments. A typical Chapter 13 bankruptcy repayment plan includes 36 to 60 months of payments during which debts are paid based on their priority. Secured creditors receive payment first, and remaining disposable income is funneled toward paying unsecured creditors. The hierarchy of payment has been established by U.S. Bankruptcy Code.

If all payments are made on time, any unsecured debt left over at the end of the plan can be discharged.

Chapter 13 Bankruptcy’s Pre-Discharge Requirements

Besides making the payments outlined in the Chapter 13 bankruptcy repayment plan, Chapter 13 petitioners must complete a financial management course (“Debtor Education”) approved by a U.S. Trustee to be eligible for a discharge. Your bankruptcy lawyer can recommend a Debtor Education course for you, or you can buy an approved Debtor Education course online at Start Fresh Today.

Who Is Eligible for Chapter 13 Bankruptcy?

Not everyone qualifies for Chapter 13 bankruptcy. To be eligible, a debtor must:

• Have a steady source of income from which to make pre-established payments to the bankruptcy trustee to benefit creditors;
• Have adequate disposable income for these payments after covering necessary living expenses; and
• Fall between the acceptable limits established for secured and unsecured debts.

These limits are periodically updated, and a bankruptcy lawyer in your area can let you know what exact current limits are. As of April, 2007, the limit for secured debt was just over $1 million, and the limit for unsecured debts was about $337,000.

If you do not qualify for Chapter 13 bankruptcy, you may still be eligible to file for Chapter 7 bankruptcy.

Chapter 13 Bankruptcy Benefits

As yet, no “cure-all” has been discovered for financial difficulties. The best alternative, whether it’s Chapter 13 bankruptcy, Chapter 7 bankruptcy, or some other alternative entirely, depends upon the debtor’s circumstances, amount and nature of debt, current income, and many other variables. Many people find Chapter 13 bankruptcy beneficial in the following situations:

• They’ve fallen behind on payments for secured property they want to keep. Many Chapter 13 bankruptcy petitions are filed specifically to stop vehicle repossession or foreclosure, but Chapter 13 can also be used to catch up on secured debts while keeping the property that secures those debts.
• They’re facing tax debts that are non-dischargeable through Chapter 7 bankruptcy. Some tax debts cannot be discharged, but can be included in a Chapter 13 repayment plan to be paid off over time.
• They have non-exempt property they wish to keep. Non-exempt property can be sold (liquidated) to benefit creditors in Chapter 7 bankruptcy, but Chapter 13 allows debtors to maintain ownership of their property while making scheduled payments.
• They’ve already filed for Chapter 7 in the past eight years and so are ineligible to file under Chapter 7.
• They want to protect cosigners on some debts. In Chapter 7 bankruptcy filings, cosigners who do not file bankruptcy are still liable for debts even if that debt has been discharged to the primary debtor. In Chapter 13 repayment plans, though, cosigners are protected as long as the debtor adheres to the plan.
• They have overdue student loan debt. Student loans are only dischargeable in Chapter 7 bankruptcy in very rare cases, but they can be included in Chapter 13 repayment plans.

Could Chapter 13 Bankruptcy Be the Choice for You?

Discussing your situation with a bankruptcy lawyer is not a final decision, it’s a step on the way to learning about bankruptcy. Too many people wait until they are in dire straits to contact a bankruptcy attorney, and then realize they have only a few days to stop vehicle repossession, foreclosure or other collection actions. Sound decisions can only be made with complete and accurate information. A Chapter 13 bankruptcy lawyer may be the best source for such information.

The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.

Often referred to as debt negotiation or debt arbitration, a debt settlement typically involves an experienced professional who works with creditors on your behalf to settle your debts at a lower amount than what is owed. In some instances, creditors may be willing to forgive a certain amount of debt in exchange for a lump-sum settlement payment.

Once a monetary amount is agreed to during the debt settlement process, the debtor will typically save up and then make the one-time payment in full. The debtor should later receive a letter from creditors stating that the debt has been fulfilled.

When Does a Debt Settlement Typically Apply?

Creditors may be willing to settle debts when:

• past attempts to collect have been unsuccessful
• bankruptcy is a serious consideration of the debtor
• the debtor has been able to demonstrate severe financial hardship

But why would creditors be willing to settle a debt at a lower lump sum than what you owe?

If previous attempts to collect the debt have been made and the debtor has shown severe financial hardship, creditors may be better off to negotiate and accept a lump-sum payment rather than taking the risk of getting less money after bankruptcy.

Learn More about the Debt Settlement Process!

If you have massive unsecured debt and would rather not file for bankruptcy, speak to a professional debt negotiator as soon as possible. An experienced debt negotiator can help you look at your current financial difficulties and learn more about the debt settlement process.

The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.