If you are dealing with
growing debt, you may be considering bankruptcy. However, for some consumers,
debt negotiation is a better, less expensive option. How do you decide which is
best for you? Evaluating the costs of each method is a good first step. Follow
these steps to determine which way to go.
Can
you pay your bills? If you're
in a situation where you can't cover any of your bills due to a job loss,
illness, or some other life change, then you should consider bankruptcy.
That is the best option to help you keep a roof over your head.
Which
bills do you owe the most on? If
you can't pay your mortgage because of rising payments, you should contact
your lender to work out an arrangement or loan modification. Effective
October 1, 2008, your mortgage company may be able to rewrite the terms of
your mortgage and possibly lower the principal on your loan. However, if
your highest bills are credit cards or other consumer debt, then you need
to determine the cost of negotiating the debt versus filing bankruptcy.
Can
you pay the out-of-pocket costs for either option? The filing fee for a bankruptcy runs between
$270 and $300, although this is subject to change by the court. Amending
your filing usually costs $26. A credit check costs $30. Credit
counseling, which is now mandatory, is typically $50 and can be done
online. Debtor education courses can be $75 to $100 and are also
mandatory. Therefore total out-of-pocket costs can reach $450 to $500,
although local charges may differ. For a debt negotiation, the out-of-pocket
costs, if you hire an attorney, include the attorney's costs for copies,
faxing, long-distance calls, etc. Some attorneys, however, only charge for
major copying that needs to be outsourced. Thus, the out-of-pocket costs
on a debt negotiation are substantially lower.
What
are the attorney fees? Attorney
fees on bankruptcy filings run the gamut, though most attorneys charge a
flat rate. A Chapter 7 filing usually costs between $1,500 and $2,500,
while a Chapter 13 filing usually is between $3,000 and $4,000. Keep in
mind, however, some attorneys charge less and others significantly more.
With debt negotiation, an attorney usually charges on an hourly basis. The
rate typically runs from $200 to $400 or more per hour. Some attorneys
will handle these on a flat-rate basis if there are only a few creditors.
What
other costs are involved? The
most overlooked cost is the cost to your credit rating. A bankruptcy, as
well as a debt negotiation, will affect that rating. The change to your
rating depends on the overall circumstances. The good news is that a
credit rating usually bounces back in 12 to 24 months.
Additional Resources:
Avvo's Bankruptcy Resource Center
National Association of
Consumer Advocates
Federal Trade Commission: Credit
Repair: Self-Help May Be Best
U.S. Department of Housing and Urban Development: Tips
for Avoiding Foreclosure
California Debt Blog
Related Legal Guides:
Declaring Bankruptcy
Debt Negotiation
Fair Debt Collection
Debt Settlement Tips
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