Jump to content

Please use the Feedback forum for questions about the upgrade.  We will get to them as quickly as possible.


Sign in to follow this  

Bankruptcy, walking away or CCCS, which is better?

Recommended Posts

Discharging your debts in a chapter 7 bankruptcy, paying them through the courts in a chapter 13 bankruptcy, just stopping payment and walking away, or setting up a Debt Management Plan though a credit counselor- which is better?

That depends on your situation. Let's look at the pros and cons of each:



Chapter 7 bankruptcy:


>Your debts are discharged (eliminated) by the courts. They can never be collected- by anyone- at any time.

>Creditors cannot prevent you from discharging their debts (unless you have committed fraud or violated the "luxury purchase" rules)

>Some creditors view chapter 7 as a "fresh start" and may grant you new credit relatively soon after discharge.

>Chapter 7 will stop collectors, collection calls, lawsuits, foreclosures and repossessions in their tracks. Creditors may even be forced to return money or assets they seized from you.

> You have the power of the bankruptcy court behind you should a rogue creditor violate your discharge in the future.

>There are no tax implications of a discharged debt. You cannot be 1099'd.



> You have a public record "bankruptcy" on your credit for up to 10 years. This may cause problems with employment, rental housing, insurance rates, and of course- future credit.

>You may lose assets that are not "exempt". Each state has specific exemptions in a bankruptcy filing.

> You may have to reaffirm (exclude from discharge) certain loans (commonly auto and mortgage) or be forced to return the auto or lose the home.

> You cannot file if you don't pass the "Means test", which considers your income and expenses.

> You cannot file another 7 for many years after discharge, leaving you vulnerable to lawsuits, underinsured accidents and medical events.



Chapter 13 bankruptcy:


> there is no "means test". You only need to have sufficient disposable income to fund a repayment plan of some sort.

>You are not required to give up assets that are not "exempt".

>You may be able to "cram down" certain loans to market value. (typically cars and second mortgages)

> Like chapter 7, stops collectors, lawsuits, foreclosures and repossessions in their tracks.

> you may not have to repay all debt at 100%, you may pay less and have the remaining balance discharged.

>Some creditors view chapter 13 as less negative than a chapter 7.

> Chapter 13 may remain on your credit report for 7 years instead of 10 for a chapter 7.



> You will be required to live on a court-ordered budget for 3-5 years.

Such budgets rarely have headroom for savings or emergencies.

>You have a public record "bankruptcy" on your credit for up to 7 years. This may cause problems with employment, rental housing, insurance rates, and of course- future credit.

>If you cannot complete the plan you will be dismissed and all protections against creditors will be lost.

> Unlike a chapter 7 that is over with in 90 days, a chapter 13 plan can carry on for 3-5 years. You cannot generally open new credit or begin rebuilding until the plan's completion.



Stop paying and walk away:


> No cost involved. No lawyer's or filing fees.

>You repay zero % of your debt, or another amount to be determined by a future settlement.

>You don't lose assets unless you are sued, lose and are garnished, levied or lien'ed.

> If you are "judgment proof" ie: no income or live in a "no garnish" state, no money in the bank, no assets, suing you is pointless.

>You may be able to settle the accounts for a fraction of the totals owed within a few months of charge off.



> You can be sued, wages garnished, bank accounts levied, possibly a lien placed on real property.

> Your credit will most likely be heavily damaged or destroyed, raising rates on insurance, hindering certain employment or housing rentals and making future credit impossible.

> You may be subject to incessant collections calls and letters.

> Secured property may be foreclosed or repossessed. You may be unable to use a bank account for fear of levy.

> You may have judgments placed against you that can be renewed for decades.


Debt Management Plan (consumer credit counseling) :



> You may pay a lower consolidated monthly payment than you were paying in individual payments.

> You may be offered lower interest rates.

> You may have late, over limit and other fees waived.

> You will make just one payment for included debts instead of several separate payments.

> Collection calls should stop, creditors agreeing to your plan have no reason to sue you to collect.

> Minimal damage to your credit in the long run, assuming the plan is implemented properly.

> Some creditors view completion of a DMP as a positive event and will grant you credit or re-open accounts based on your plan payment history.



> A DMP is voluntary for you and the creditors. There is no guarantee they will accept or continue a plan.

> Repayment is generally 100% of your debt.

> A DMP provides no protection from lawsuits, errant credit reporting, foreclosure or repossession. (although creditors paid on time have no incentive to foreclose or repossess)

> Under certain circumstances you may be reported "late", or have your accounts charged off, damaging your credit.

> Your accounts may be noted as "managed by CCCS", preventing most new credit while the notation lasts.

> Exiting the plan early may have serious negative implications including reversal of concessions and extremely high interest rates.

> A typical plan lasts 3-5 years, delaying credit rebuilding until it's completion.

Share this post

Link to post
Share on other sites
This topic is now closed to further replies.
Sign in to follow this  

About Us

Since 2003, creditboards.com has helped thousands of people repair their credit, force abusive collection agents to follow the law, ensure proper reporting by credit reporting agencies, and provided financial education to help avoid the pitfalls that can lead to negative tradelines.

Important Information