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Should I Go With Bankruptcy or Debt Consolidation? – Patricia

My husband has lost his job twice in the last 2 years. The first time it only took him 1 month to find a new job, so we recouped pretty quickly. The second time (which was just in February 2010) it took him 5 months to find a job. His new job includes a $10K reduction in salary and with higher commuting costs. We went through a very difficult time and we subsequently went through all of our savings pretty quick. (which wasn’t much to begin with). Also adding that during this time, we had two very expensive vehicle repairs. When it rains it pours!!

Because of the above situation, we stopped paying on our biggest credit cards. We haven’t paid any of them in almost a year now. It came down to putting food on the table and a roof over our heads or pay them their minimum payments. We had no choice. Just recently my husband received a letter from his employer stating that they had received a wage garnishment request and that they would begin to deduct a very substantial amount from his paycheck to meet those requirements. This amounts to almost $800 a month!! Turns out that this is one of those Credit Card companies. In panic, my husband set up an appt to meet with a bankruptcy attorney. There is no way that we will be able to pay our regular bills, light, gas, phone, etc… with such a drastic reduction in salary. We were told that we didn’t qualify for chapter 7, but that we qualified for Chapter 13. Which is fine, it’s our debt and we want to pay it off. I also know that our cred it scores are rock bottom already. (Very low 400’s, It’s embarrassing.) I’m torn between taking this route (bankruptcy) or joining a Debt Consolidation program. I know that I can’t change what’s already done, but I want to prepare for the future. We are afraid of what bankruptcy will do for us as far as getting vehicle loans, new jobs, in the future. The bankruptcy attorney also stated that the monthly payment under chapter 13 must be a wage garnishment agreement, disclosing to the employer that you have filed for bankruptcy. Is this the normal procedure? What are your suggestions.

Thank you


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  • James Van Every

    First, take your head out of the sand and stop avoiding your situation. In order for a garnishment to happen you had to be served a summons. Evidently you didn’t respond to the summons, and most likely a default judgment was entered against you. The creditor’s lawyers then asked the court for issue a garnishment. All of that would have generated legal paperwork. You probably received copies of all the legal paperwork. There are numerous websites on the net that give reasonable advice on dealing with debt lawsuits. You might not win, but you could delay the whole process if you were actively involved in the process, even without an attorney. Ok, so now you are taking active ownership of the situation.
    I assume that by debt consolidation you mean debt settlement, where the debt is settled for less than the full balance. None of the consolidation/settlement programs actively protects you or prevents lawsuits. Given the success of the first lawsuit, I expect that the remainder of your major creditors will also sue you, win and ultimately, garnish your wages, garnish your bank account, and place a lien on your home. Your creditors will have to stand in line, only one wage garnishment at a time, but they have an excellent chance of getting all their money back from you plus a major inflation due to fees, 29% interest, lawyer fees, and court costs. Debt settlement does work for some debtors, but not when there are already lawsuits, judgments and garnishments underway.
    Your credit will recover after a bankruptcy, and some creditors will seek you out as you cannot go bankrupt for 7 years. I’m not sure but I think the BK will clear your credit report of the judgment or at least get it marked as satisfied and completed.
    The whole wage garnishment process does not take into account your valid expenses, or other commitments you may have. It just takes 25% of after tax income. Chapter 13 bankruptcy should take some of that into account.
    Go to the US Dept. of Justice website, search there for bankruptcy and means test. There is a lot of useful consumer information on the site. You should get some idea of what the chapter 13 bankruptcy will mean to you.
    Perhaps best of all, BK will stop all the creditors from bothering you, and no one will be suing you.
    You should proceed quickly as you don’t want the garnishment to take effect. Once your wages are seized and given to the law firm, they will apply it to the balance and you won’t get it back and it won’t be considered part of the BK process.
    You will probably need an attorney. Bankruptcies can be done by the debtor but it really depends on how complicated your financial structure is, how many assets you have, what type of assets they are, and what you are trying to retain. If that is frightening, then get an attorney.

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