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What are my options for debt relief?

On Behalf of | Aug 10, 2021 | Bankruptcy |

Reports have recently come in stating that bankruptcy filings are spiking this year. Indeed, the U.S. has already seen nearly 80,000 filings this year, which may mean that 2021 may be a record-breaking year for bankruptcy filings. In light of these numbers, it is no wonder that many are wondering what their options are for debt relief.

Chapter 7 bankruptcy

For personal bankruptcy, there are two options, Chapters 7 and 13 bankruptcy. By far, Chapter 7 bankruptcy is the most popular because it is designed to wipe out debt immediately after the bankruptcy is finalized. As long as filers fall below the income limitations (a state’s median income of a same-sized household), it is also the cheaper of the two options.

Chapter 13 bankruptcy

For those that do not qualify for Chapter 7 bankruptcy, Chapter 13 is the other option. Though, it is much more expense in terms of attorney fees and repayment terms because it requires a three- to five-year repayment plan. And, this repayment plan can cause issues. In 2020 alone, nearly 27% of Chapter 13 filers lost their bankruptcy protection because they missed payments.

How bankruptcy helps

First, it stops all court and collection proceedings, which can eliminate the mental toll debt can take on debtors every day. Second, it eliminates debt, not all debts, of course, but most debts. Third, while most retirement accounts are shielded from creditors, IRAs are not, but bankruptcy protects them up to $1.36 million. It also frees up cash to put into retirement, which will mean that one’s estate at death will be much more than prior to the filing.

Alternatives to bankruptcy

For those still on the fence for bankruptcy filings, there are other options for Michigan residents. If one is a home owner, prices are at historic levels, so selling may be a way to get out of debt and transition into a smaller home or rental property. Loan modifications can also be requested, and right now, creditors are much more willing to modify loans and credit balances. For mortgages, APRs can be reduced to 3% for years, loans extended from 30 to 40 year, deferring loan payments, etc. Debt settlement is also an option. This is where one negotiates with the creditor to accept a reasonable lump sum payment in lieu of the full balance. For example, accepting $10,000 now for a $25,000 debt. Though, even if one is not considering bankruptcy, even these bankruptcy alternatives are still best done through a Southfield, Michigan, lawyer.