Step 1 – Identify Income, Expenses & Debt
Financial Calculations:
- Add up all sources of income after taxes are taken out. This is your monthly after-tax income. Use our handy form for this.
- Add up how much you spend on food, clothes, rent, mortgage, car payment etc. on average each month but do not include credit cards and unsecured loans. This your monthly expense/budget.
- Add up your total unsecured debt (i.e. all of the balances on all credit cards, medical bills, utility arears and unsecured loans).
- Calculate your excess income which is (Section 1 minus (-) Section 2 minus (-) Section 3). Hopefully it is positive. If not, earn more money and/or cut expenses. If these things are not likely to occur, go to Section 5.
- Calculate the time in months it would take to pay off your debt, which is your total unsecured debt divided by your monthly excess income (Section 3 divided by (/) Section 4). If this number is greater than you want to spend paying off the debt, go to Step 2- Try Negotiation below. Remember that the actual time to pay off your debt will be greater than this calculation due to interest.
- If you are comfortable paying off the debt in the time-frame that you calculated in Section 5, then you are done. All you have to do is be disciplined and make it happen! If this time frame is too long, go to Step 2 – Try Negotiation.
Example:
Diandre
- Monthly after-tax income is $3,000
- Monthly expenses are $2,500
- Total unsecured debt is $20,000
- Calculate excess income (1 minus 2): $3,000 – $2,500 = $500
- Calculate the time in months to pay off debt (3/4): $20,000/$500 = 40 Months
Things to keep in mind:
- Remember if your budget is too tight you may not be able to deal with any unforeseen events in your life.
- When doing the calculations keep your expenses, budget, income realistic.
- It is critical to make payments on time. If you do not think you can stick to the monthly payment then go to Step 2 -Try Negotiation.
- If you need help in reviewing your situation, contact us via email at help@deltalawgrp.com or call us at 412-349-0938 for a free consultation.
*Note: This 4-Step evaluation process just touches upon important but not all considerations when deciding how to deal with debt and whether to file for bankruptcy protection. There are exceptions and qualifications for some of these steps but it is intended to provide you with a good basic idea of how to deal with debt. Due to the difficulties and dangers, we highly recommend you obtain an attorney experienced in this area to help you. Each case is unique and this process is provided as a guide and not intended to provide you with legal advice. Legal advice should only be taken from an attorney that you trust and that has experience in this area of law.
Step 2 – Try Negotiation
Try negotiating with creditors.
Negotiate a reduction in debt or change in terms with each creditor so that you can afford to pay off the total debt in the time frame you feel comfortable with (i.e. re-do Step 1 – Identify Income, Expenses and Debt). The goal is to call each creditor and ask for the debt terms to be changed so that you can pay a lower monthly payment and/or that the total debt amount be reduced. Note that you must ensure that the changes in terms are documented in writing. Contact Delta to discuss possible representation in negotiating with creditors.
Things to keep in mind:
- There are downsides to negotiating with creditors including: An increased total debt in order for you to get a lower monthly payment; An increased interest rate; and, A possible reduction in your credit rating. Also, getting changes in writing may be difficult.
- There are a number of hazards with negotiated payment terms including the situation if you are late or miss a payment. Often the result will be a reinstated prior balance that includes late fees and interest and, of course, your credit score will suffer.
One other option is to stop paying one or more of the creditors and walk away from the debt.
Things to keep in mind:
- This can lead to lawsuits, collection calls and a serious reduction in your credit score.
- There is the possibility of a set-off. Set-off occurs when the creditors also hold your money and reach in and grab some to pay your debt. For example, when you have a credit card with your bank.
- The creditor could get a judgment and you may be dodging the creditor for years. In the end, your ability to get credit in the future may be severely affected.
If you do not want to negotiate with creditors or walk away from your debt and risk years of harassment by creditors, judgments and loss of assets, then go to Step 3 – Chapter 7 Bankruptcy.
If you want an experienced, skilled and confident firm to deal with creditors, then contact us via email at help@deltalawgrp.com or call us at 412-349-0938 for a free consultation.
Step 3 – Evaluate the option of a Chapter 7 Bankruptcy
Chapter 7 Bankruptcy:
1. Review the basic outline of the Chapter 7 Bankruptcy process here.
2. Review Advantages & Disadvantages of Chapter 7.
Chapter 7 Bankruptcy advantages:
- Eliminates unsecured debt such as credit cards, utility bills, phone bills and medical bills.
- Stops collection and creditor calls and lawsuits.
- Eliminates tax debt in certain circumstances.
- Stops mortgage foreclosure and eviction actions for a time and allows you breathing room to deal with them.
- Allows you to keep all of your possessions (e.g. bank account, TV, computer, car), subject to limitations.
- Allows you to keep all qualified retirement accounts (IRA, 401k, 403B etc.).
- Is completed in approximately 90 days for most cases.
- Your creditors must leave you alone during the bankruptcy case, and after you successfully complete it.
- Successful completion of the bankruptcy allows you to rebuild your credit.
Chapter 7 Bankruptcy disadvantages:
- Can hurt your ability to qualify for loans or credit cards for a few years. However, many lenders will still lend to you at higher interest rates.
- Can hurt your ability to rent property due to restrictions by landlords. However, if you have missed payments, your credit rating has probably been damaged anyway.
- A record of your Bankruptcy filing stays on your credit report for 10 years. However, missed payments and delinquent loan information can remain there 7 years.
Ensure that you qualify to file a Chapter 7 Bankruptcy.
- You must meet income restrictions. See latest income restrictions here.
- You must not have too many assets. If you do you may still qualify but you may lose some of them. See asset restrictions here.
- You must not have filed and completed a Chapter 7 bankruptcy within the past 8 years.
- Meet other restrictions that may apply to you in limited situations. See other restrictions here.
Review the cost to file a Chapter 7 bankruptcy.
- For representation in a Chapter 7 case, we generally charge a base fee of $1500 + filing fees and costs (total around $335) subject to an evaluation.
- Fees are paid before the case is filed.
- Additional fees may be charged by us during the case if there are special needs or unforeseen events that cause additional work.
- If you do not qualify for a Chapter 7 then go to Step 4 – Evaluate the Option of a Chapter 13 Bankruptcy.
Things to keep in mind:
- Remember that the final decision of whether to file bankruptcy or not should be done with the assistance of a person with experience and knowledge in this area. While there is no requirement that an attorney represent you, we do not recommend that you file without representation.
- If you would like us to represent you in bankruptcy or just to review your situation, then contact us via email at help@deltalalwgrp.com or call us at 412-349-0938 for a free consultation.
Step 4 – Evaluate the option of a Chapter 13 Bankruptcy
1. Review the basic outline of the Chapter 13 Bankruptcy process here.
2. Review Advantages & Disadvantages of Chapter 13.
Chapter 13 Bankruptcy advantages:
- Available for most of those who do not qualify for Chapter 7.
- Allows you to consolidate your debt and repay and/or eliminate some of it over a period of 36 months to 60 months and in some COVID-19 Related cases, 84 months.
- Allows you to keep a house with a delinquent mortgage or in foreclosure by paying back the arrears in a 36-month to 84-month plan.
- Allows you to keep a vehicle with a delinquent loan by paying back the arrears in a 36-month to 84-month plan.
- Allows you an opportunity to renegotiate or reset the terms of loans so that they are more affordable.
- Allows you to reduce or eliminate tax debt or at least make it easier to deal with in a bankruptcy plan.
- Successful completion of the bankruptcy allows you to rebuild your credit.
Chapter 13 Bankruptcy disadvantages:
- You must devote all extra income to the monthly plan payment. This can be difficult and requires perseverance for 3-7 years.
- Failure of the plan can cause you to have the debts reinstated with interest. However, often a backup course of action is to convert the case to a Chapter 7 or negotiate with creditors.
- Can hurt your ability to qualify for loans or credit cards for a few years. However, many lenders will still lend to you at higher interest rates.
- Can hurt your ability to rent property due to restrictions by landlords. However, if you have missed payments, your credit rating has probably been damaged anyway.
- A record of your Bankruptcy filing stays on your credit report for 10 years. However, missed payments and delinquent loan information can remain there 7 years.
Ensure that you qualify to file a Chapter 13 Bankruptcy.
- Ensure that you have sufficient extra money, after necessary expenses, to make a monthly plan payment that pays off the plan debts within the plan timeframe (i.e. 3-5 years and in some cases, 7 years).
- Ensure that the bankruptcy plan includes payments to all secured creditors that pays off the creditor claims/debts within the plan timeframe.
Review the cost to file a Chapter 13 bankruptcy.
- For representation in a Chapter 13 case, we generally charge a base fee of $3000 + filing fees and costs (around $310) subject to an evaluation and an additional $2000 paid through the plan.
- Fees are paid partially upfront and partially through the bankruptcy plan. Additional fees may be charged by us during the case if there are special needs or unforeseen events that cause additional work.
- Please note that we can work with you to ensure that your bankruptcy is paid for and that you get the representation you need.
- If you do not qualify for a Chapter 13, then call us to see what other options may be available.
Things to keep in mind:
- Remember that the final decision of whether to file bankruptcy or not should be done with the assistance of a person with experience and knowledge in this area. While there is no requirement that an attorney represent you, we do not recommend that you file without representation.
- WARNING: This 4-step process is a basic outline of things to consider when dealing with debt. There are innumerable variations in each case and nuances in the law that cannot be covered here. Each case is unique and this process is provided as a guide and not intended to provide you with legal advice. Legal advice should only be taken from an attorney that you trust and that has experience in this area of law.
- If you would like us to represent you in bankruptcy or just to review your situation, then contact us via email at help@deltalalwgrp.com or call us at 412-349-0938 for a free consultation.
“Tomorrow belongs to those who prepare today.”
–Unknown