Will you do anything for money? The “broke, unemployed and bankrupt” can now
apply for an upcoming reality tv show where they can compete for cash to pay their bills. The show is called Competition for Cash. It’s somewhat ironic that they’re looking for people who have filed bankruptcy because most filers get a discharge from most or all of their debt. Anyway, it will be interesting to see what type of things competitors will need to do in order win money.
When many of my clients file a Chapter 13 bankruptcy, their biggest concern is whether they will still have enough money to live on after making payments to the trustee. In the ideal world, there will never be a problem with the Chapter 13 plan payment amount. After all, the payment is based on how much money a debtor has available after paying living expenses. As long as the debtor can stick with a budget, there should be no problem.
Problems do arise for several reasons. Sometimes debtors do not accurately list their living expenses. For example, they forget about certain expenses such as pet food or underestimate the utilities. Without an accurate budget, debtors struggle to make their plan payments. When the budget fails, the Chapter 13 case is more likely to fail.
People who file a Chapter 13 bankruptcy are required to have reasonable living expenses. This may be a problem for people who are used to living beyond their means. It’s also a problem for some people who have suffered a loss of income because they are used to a higher standard of living. Also, the court doesn’t consider expenses for non-dependants to be reasonable so tuition payments for an adult child is not considered to be reasonable.
As a bankruptcy attorney, my goal is to help debtors reduce their living expenses and create a reasonable budget that they can maintain. In most cases, the monthly payments in a Chapter 13 plan are lower than the minimum monthly payments outside of the Chapter 13. The good thing about a Chapter 13 is that debtors who do struggle with the plan payments may be able to have their payment amount changed.
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Some people prefer to negotiate settlements with their creditors either through a debt management company or on their own. Their goal is to avoid what they consider to be the absolute worst option:
bankruptcy. However, a bankruptcy provides some benefits that are not available in
debt settlement.
When a debtor files bankruptcy, there is an automatic stay that becomes effective. Creditors must immediately stop all collection activity against the debtor. Creditors must stop sending collection letters and statements, garnishing wages, and contacting debtors on the phone. If a lawsuit is in process, the lawsuit must be closed with the court. As a result of the automatic stay, debtors get relief from creditors.
With debt management, interest rates are typically negotiated with creditors to reduce the monthly payments. However, there’s nothing that absolutely prevents creditors from contacting debtors. To make matters worse, there are some fraudulent debt management companies that take money, but don’t do anything to settle the debt.
Both bankruptcy and debt settlement are reported on credit reports. Bankruptcy can be reported for up to ten years, but that doesn’t mean that it will take ten years to improve a
credit score. Also, debt eliminated in a bankruptcy doesn’t count as income for tax purposes while settled debt may count as income.
As shown above, bankruptcy is not always the worst option in the world. There are benefits that are not available with other options.