What is a Cost Effective Way to Get Out of Debt in Pennsylvania?


Dear Steve,

I have 5 c.c (in default) and 1 unsecured loan (not in default) totaling approximately $48,000 in my name. And, I co-signed for one unsecured loan also in default.

The co-signed creditor is suing but has offered a re-payment agreement in lieu of going to court. My friend, whom I co-signed for wants to sign the agreement and take back responsibility for this loan.

We both fell on hard times but are working to improve our financial future. An attorney recommended that I opt for debt negotiation rather than bankruptcy, chapter 13 because it is more cost-efficient. He believes the trustee may expect me to pay back 100% of the debt because I have too much equity in my home ($80,000-$90,000), if you can believe Zillow. My reason for saying this is the home needs repairs and upgrades which I believe would affect value.

Would debt negotiation be more cost-effective considering I cannot offer a lump sum payment to the creditors?

With that in mind, what breaks in interest, penalties or rates would make it cost-effective?​

If I filed bankruptcy could the repairs and other sale-related expenses could be deducted from the chapter 13 liquidation test?

Could the Zillow value be challenged with another form of valuation?​

I live in Pennsylvania if that helps.



Dear CJ,

The first thing I would suggest is to visit a total of three local bankruptcy attorneys to get a second and third opinion. When it comes to crafting a bankruptcy filing some attorneys are technicians and others are artists. I strongly think you need at least another set of eyes on your specific situation before considering it set in stone.

When it comes to Zillow, it is a cute value but not an accurate one. Only a full appraisal by a licensed appraiser can give you an actual comparative value based on the condition of the home and work needed. I would never rely on what Zillow or any of the other mass calculated home values propose. Even government tax values can be way off as well.

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On the co-signed loan I’m a bit dubious that the lender would transfer the liability of the loan away from you as a co-signer with a repayment agreement. Now I have seen that happen when a lumpsum settlement is paid by the co-signer. Especially when it comes to private student loans.

But the role of the co-signer is simply to be the responsible party for the loan if it defaults.

I’m glad you mentioned that you live in Pennsylvania. It is one of the few states with limited wage garnishment laws. Only debts for the following are subject to garnishment in Pennsylvania: child or spousal support, obligations relating to a final divorce distribution, back rent on a residential lease, certain types of taxes, student loans, and court-ordered restitution in criminal matters.

So it would be possible to default on your credit cards to initiate a settlement approach and avoid a wage garnishment but it still leaves you exposed to being sued, losing, and having a lien placed on your home.

There are only two primary ways to deal with your debt with the least complication:

  • Bankruptcy – Filing bankruptcy not only gives you the power of law behind you to give you protection from creditors but it also is a defined and accepted legal right that creditors understand how to handle.
  • Make at Least the Minimum Agreed Payments – By making at least the minimum monthly payments you will keep yourself out of default.

Options like debt settlement can be good solutions but it is not a blanket widget that works in all situations. The best situation would be for people who are already behind, have yet to be sued, and have a lump sum of money to use for the settlement.

You might want to read my article on debt settlement to learn the pros and cons of this solution.

But your situation is fairly common. You see you have a unique set of circumstances that are not easily solved with a single solution broad brush. Everyone is unique and the best debt relief solution is one that is custom-crafted for the individual. Sometimes a really good solution requires a little of this from column A and some of that from column B.

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Frankly, the only way you are going to find that level of personalization is if you talk to a debt coach like my friend Damon Day. As a personal debt coach, he will create a personalized approach that is crafted by looking at your current set of circumstances and your future financial goals.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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