How Chapter 7 Works

Most people have heard of chapter 7 bankruptcy. In this posting, I want to explore how it works.

Chapter 7 is based on the idea that you cannot afford to make any payments on your debts. To put it another way, even if you had no debts, your living expenses alone leave you broke by the end of the month. The court doesn’t take your word for this. You have to prove you can’t pay your debts. You submit a statement of your monthly income and living expenses. You must provide proof of earnings and tax returns as well. People with above-median income have additional requirements. Continue reading

Debt Consolidation Is Not The Way To Go

Debt consolidation companies advertise that they can negotiate with your creditors for lower payments and interest rates. They claim they can help you repay your debt quickly and improve your credit score immediately. If this sounds too good to be true, that’s because it is. Problems with debt consolidation include:

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Change Your Chapter 13 Plan

A client told me recently that her employer reduced her hours. She expects to earn $500 per month less that her previous income. Fortunately, chapter 13 provides flexibility in situations like hers. In many cases, its possible to change the payment amount. The law requires a showing of a substantial change in circumstances. She should have no trouble in meeting this requirement. Continue reading