As bankruptcy attorneys, we are very familiar with households struggling with debt. These struggles with credit card and other payments usually start with monthly payment requirements which grow to the point the card holder can only afford to make minimum payments on balances due on each card. If card holders don’t increase their debt from this level and the rest of their financial picture stays the same, they end up in a situation where payments are being made but the debt balances don’t get reduced by more than a few dollars each month, if at all. If spending continues or the card holder’s financial situation worsens, the card holder will start to miss payments.
Economics of the Minimum Payment
In the first situation, where minimum payments are what can be afforded, the card holder is in for a long, one way relationship with each credit card company. Should the situation remain unchanged, it would take this card holder approximately 25 years to finally pay off the debt owed to each card issuer. At the time of the last payment, this card holder would have paid many times more than the original balance owed in interest to the credit card company.
Worsening Financial Situations
Depending on the cause of the worsening a financial situation, the problems with making payments can grow gradually or unravel in a hurry. Either way, collection calls and letters start to arrive and the credit card companies start making noises about taking the card holder to court, wage garnishments, and liens on bank accounts.
Neither of these situations will go away on their own, meaning that people in debt have to make a decision as to whether they want to keep struggling with their debt or take decisive action. Where a bankruptcy lawyer can make a big difference is by helping people in debt navigate either a Chapter 7 or a Chapter 13 bankruptcy process.
When to Talk to a Bankruptcy Lawyer
An experienced lawyer will start the process by determining whether a means test will direct a filer toward a Chapter 7 or a Chapter 13 bankruptcy. The usual dividing line between the two is the median household income of the state of residence. Filers with household income below the median level typically file for Chapter 7 while those above file Chapter 13 bankruptcy.
Chapter 7
A Chapter 7 is known as a liquidation where the bankruptcy court discharges all unsecured debts, leaving the debtor with no further obligations to make payments to the creditors listed by the Los Angeles bankruptcy attorney in the petition. The types of unsecured debt which will be discharged by the court include balances owed on credit cards, medical bills, department store debt, signature loans and more.
Chapter 13
A Chapter 13 bankruptcy is a more complex process and should not be negotiated without the counsel of a Los Angeles bankruptcy lawyer. While it doesn’t result in the dismissal of debt, Chapter 13 bankruptcies offer significant debt relief on subordinated mortgages, vehicles, and unsecured debts. The end result of a Chapter 13 is the creation of a court approved payment plan designed to pay creditors an average of 25 cents on the dollar. These payments plans usually last 5 years and can include payments on credit cards, the mortgage, vehicles, and a variety of other balances.
Finding a Way Out of Debt
Many people are now looking at their debt levels and have become resigned to the perception that they will face many years, if not a lifetime, of struggles with their debt. The truth is debtors no longer need to struggle with their debts indefinitely. Working with a bankruptcy attorney can end those struggles, stop collection efforts by creditors, and provide a fresh financial start.
It all starts with consulting a Los Angeles bankruptcy attorney at the Law Offices of Zhou & Chini, intensive planning, and execution of a well- developed strategy. If you have an investmet property you want to protect in bankruptcy or simply want more information on Chapter 13 call the Law Offices of Zhou & Chini today. With over 10 locations throughout California we are here to help. To schedule a free consultation call us toll free at (800) 972-9600 or visit us online at BankruptcyAttorneyinCalifornia.com.
From the author: Get Help With a California Bankruptcy Attorney
