When to choose bankruptcy over debt management

By Steve Bucci

Dear Debt Adviser,
I have more debt than I can handle, and I am enrolled in a debt management plan. However, my expenses still amount to more than I bring home, and the debt management agent knew this going in. They calculated my debt payment as $344 with the program, and they never advised as to whether I should file for bankruptcy. Should I have filed for bankruptcy instead? If I file for Chapter 7, would I have to include all of my debt including personal loans? 
-- Shirley

Dear Shirley,
Slow down, Shirley! You have a lot going on here, so let's take things one at a time. First, you should not have been enrolled in a debt management plan if your income level does not allow for the monthly payment. Call the debt management agency as soon as possible, and ask to speak with a supervisor. Have them go over your case from start to finish. If a mistake as big as putting you in an unaffordable plan was made, other issues may have been overlooked as well. Find out if your payment can be lowered to what you can afford. Many agencies can offer a hardship debt management plan titled a "call to action," which lowers the interest rate on your credit card accounts to the lowest possible level. That may decrease your monthly payment enough to make the debt management plan work for you.

A reputable credit counseling agency will not enroll persons in a debt management plan unless the counselor has provided a spending plan that balances income and expenses. If you are having trouble meeting your monthly payment because you are not following the spending plan provided by the agency, then you have a decision to make. Either get back on track and spend only as the plan allows, or increase your income with a part-time job or other income source.

Second, as for bankruptcy advice, I'm not surprised the counselor didn't give you any. Only an attorney can give legal advice, and bankruptcy is a legal process. However, your counselor can and should go over the pros and cons of filing for bankruptcy and whether it would make sense for you to get a legal opinion for your particular situation.

Third, should you find you absolutely cannot afford to make your payment and want to explore bankruptcy, I recommend you contact an attorney who specializes in consumer bankruptcy. To qualify for a Chapter 7 filing (in which your debts are forgiven and not repaid) your income must be below the median income for your state.

You would typically include all your debt in a bankruptcy filing, but you can file a reaffirmation document for a particular debt(s) if you have a good reason for doing so. You and your attorney will have to sign the reaffirmation document that states you can afford to repay the debt and it will not be an undue hardship on your post-bankruptcy budget to continue to pay the debt you would like reaffirmed. Typically, unsecured debts would not be included in a reaffirmation, which would include personal loans. Most reaffirmations would be for car or mortgage loans. I'm not sure why you would want to reaffirm a personal loan, but if you can convince the court and your attorney that it would be in your best interest to do so, you could file a reaffirmation for the debt.

Lastly, you wanted to know if you should have filed instead of going on a debt management plan. My answer is that if the debt management plan can be made to work, you are usually better off. A bankruptcy can stay on your credit report for up to 10 years. A poor credit report may affect your ability to get a decent apartment, home or insurance for years to come. If you have no other way out, then you may have no choice but to file. Just be sure you consider all the potential ramifications before you decide.

Read more: When To Choose Bankruptcy Over Debt Management | Bankrate.com http://www.bankrate.com/finance/debt/choose-bankruptcy-over-debt-management.aspx#ixzz1hOvuZp5p

Extinct Companies: Some die young, some in middle age. Bankruptcies and Takeovers

Companies die every year. 

Some die young.  They try to go too far too fast on borrowed money they can't pay back, and they crash. 

Some die in middle age because their products turn out to be defective, or too old-fashioned, and people stop buying.  Maybe they're in:

• the wrong business, or
• the right business at the wrong time, or
• worst of all, the wrong business at the wrong time.

Big companies can die right along with smaller and younger companies.

American Cotton, Laclede Gas, American Spirits, Baldwin Locomotive, Victor Talking Machine, and WRight Aeronautical were once big enough and important enough to be included in the Dow Jones Industrial Average, but they're gone now, and who remembers them?  The same goes for Studebaker, Nash, and Hudson Motors, Remington Typewriter, and Central Leather.

Takeover

There's one way a company can cease to exist without actually dying.  It can be swallowed up by some other company in a takeover. 


Bankruptcy:  Chapter 11 protection and Chapter 7

Chapter 11:  And often, a company can avoid dying a quick death by seeking protection in a bankruptcy court. Bankruptcy court is the place where companies go when they can't pay their bills, and they need time to work things out.  So they file for Chapter 11, a form of bankruptcy that allows them to stay in business and gradually pay off their debts.  The court appoints a trustee to oversee this effort and make sure everyone involved is treated fairly.

Chapter 7:  If it's a terminal case and the company has no hope of restoring itself to profitability, it may file for Chapter 7.  That's when the doors are closed, the employees sent home, and the desks, lamps and word processors are carted off to be sold.

Often in these bankruptcies, the various groups that have a stake in the company (workers, vendors, suppliers, investors) fight each other over who gets what. 

• These warring factions hire expensive lawyers to argue their cases. 
• The lawyers are well-paid, but rarely do the creditors get back everything they're owed. 

There are no funerals for bankrupt companies, but there can be a lot of sorrow and grief, especially among workers, who lose their jobs and bondholders and stockholders, who lose money on their investments.

Companies are so important to the health and prosperity of the country that it is too bad there isn't a memorial someplace to the ones that have passed away.  Or perhaps the state historic preservation deparments should put up plaques on the sites where these extinct companies once did business.  There ought to be a book that tells the story of interesting companies that have disappeared from the economic landscape, and describes how they lived, how they died, and how they fit into the evolution of capitalism.