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f you have already decided that you need to file for bankruptcy, the next question you should ask yourself is “when?” While you might feel that you need to file ASAP, in some situations, it actually makes sense to wait a little bit before you file Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 and Chapter 13 Bankruptcy

Here’s a quick overview of Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy essentially allows you to wipe your financial slate clean without the worry of making “past due” amounts. A trustee liquidates your salable assets, thus allowing you to pay off your credits. Once that’s done, lenders shouldn’t be calling you to collect.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to reorganize your debt. You work with a bankruptcy attorney to set forth a plan to repay as much as your debt as possible during a 3-5 year period. You’ll be required by a bankruptcy court to provide detailed financial statements that support your proclaimed revenue and expenses. Once the plan is created you’ll have to make monthly payments to a trustee, who in turn pays off your creditors. Once you have completed the repayment plan, you are no longer responsible for any previous debts, even if through repayment, you were not required to pay the entire amount that was owed. Chapter 13 also stops increases on interest rates, such as the interest rate owed on a credit card. 

Deciding on Chapter 7 or Chapter 13

Choosing between Chapter 13 and Chapter 7 bankruptcy is an important decision to make. Weighing both options with a bankruptcy attorney will help you decide which way to file. Also, to help your attorney help you to make the best decision, it’s necessary you provide them with accurate information regarding your finances. It’s also important to remember that some debt is not able to be discharged under either type of bankruptcy. These debts include: student loans, alimony, and child support. Working with a bankruptcy lawyer is the best way to determine if you are eligible to file.


When people file too early without considering all other options, it can mean losing property, or also mean having to file for Chapter 13 instead of Chapter 7. There are even some ways to avoid having to file for bankruptcy. You’ll want to consider some things and consider when it might be time to pump the brakes on your bankruptcy.

Avoiding Foreclosure

It’s not uncommon for people to file for bankruptcy in order to avoid being foreclosed on. This can be a good solution to the situation, but when you file too early, it can make it difficult to get a modification to your mortgage. This is because most lenders refuse to offer modifications if you have entered bankruptcy, due to the fact that a bankruptcy cancels the promissory note part of your mortgage (but not the lien on the house). As a result, there is nothing for you to negotiate with. If you are considering a mortgage modification, or have found out that you might be eligible for one, avoid filing for bankruptcy.

Recent Income Too High

Once you file for Chapter 7 bankruptcy, the court reviews the previous six months of income in order to determine your eligibility. This is called a “means test.” If your income is too high, a court will typically only allow you file for Chapter 13 bankruptcy, which requires that you repay a portion of your debts.

If a pay cut or loss of job has caused your income to dip, or you see that happening in the foreseeable future, you might want to consider waiting to file for bankruptcy. This decrease in income might allow you to be eligible for Chapter 7.


Filing a Chapter 7 bankruptcy means you lose your property. Waiting might mean that you save this property, or at least have time to sell it to use the proceeds to pay down your debt.

Some examples:

  • You are expecting a tax refund of $4,000. If you file bankruptcy before you receive it, you will have to surrender it. If you wait, you can use it to pay down some of your bills.
  • Consider depreciation values, such as with cars. Say your car is worth $6,000, but your state bankruptcy exception laws only allow you to keep a car that has a value of $5,500. Waiting a few months could mean you get to keep your car.

New Debts on the Horizon

It’s advised that you wait to file for bankruptcy if you have new debts looming in the future. This is because Chapter 7 bankruptcy only erases debts you have as of the date you file. So if large debts are heading your way, you’ll have to deal with them on your own. An example of this is having to go into surgery. If you file before the surgery, you will have to pay for the medical bills. But if you wait to file after the surgery, you can include that in your filing.

Credit Card Debt

Some people figure that high amounts of credit card debt mean no other options but filing for bankruptcy. That’s not the case though.

There’s nothing fun about not being able to pay off your debt. But debt consolidation can help.While no one likes to deal with debt collectors, it might be your first step to making your mountains of debts into a more manageable molehill. It might even reduce how much you owe.

Debt Settlement

Debt settlement is the process through which companies are able to collect payment on a debt that you owe them. It allows you to negotiate with creditors, or in some cases collection agencies, to reduce the amount owed, thus allowing you to get back on sound financial ground.

What Debt Consolidation Companies Do

A lot of times willpower is not enough to help debtors out of the hole. It’s important that you analyze your spending habits. Going out to dinner every night for a delicious but extravagant meal will not help you pay down your $33,000 Visa debt. You’re going to need to make some changes. But if you have made those changes and you still are not reaping the rewards of your new debt habits, then you might want to seek the help of an expert.

That’s exactly where a debt consolidation company comes in. These companies are kind of like your best friend that stops you from eating that fourth chocolate chip cookie. Debt consolidation companies are there to “save you from yourself” and help you make the right financial moves before your “inner cookie monster” takes over.

Here’s what a debt consolidation (a.k.a. debt management or credit counseling) does:

  • Closes credit accounts so you cannot use them.
  • Sets up an automated monthly payment based on your budget that gets distributed it to your creditors.
  • In some cases, they can negotiate lower APRs or reduced late fees with your creditors.

Considering Debt Consolidation

Debt consolidation can be helpful to anyone: whether you’re considering bankruptcy, or if you are just trying to get a handle on your finances.

What Is Debt Consolidation?

Debt consolidation means that all of your smaller loans get paid off with one large loan. So you essentially get one lump sum to pay off your smaller loans so that you only have one monthly payment rather than several monthly payments. The their behind this is one payment is easier to manage than several. And the main goal is it lower the interest rate and monthly payments while paying off your debt in a quicker amount of time.

Debt Settlement

It’s important to note that debt consolidation is not the same as debt settlement. Debt consolidation allows you to pay your debts in full without causing negative consequences to your credit. Debt settlement is the process of paying off debt to a creditor once a mutually agreed to sum is reached. This sum is usually less than what is owed. Typically, only unsecured debt (for example, credit cards and medical bills), is eligible for debt settlement. Debt settlement is often considered a risky process.


If your debt is too high to be consolidated, you might want to consider bankruptcy. A bankruptcy attorney will be able to look at your financial situation and determine if bankruptcy is a viable option for you. They will also evaluate your options for avoiding bankruptcy if other options exist. There are many different ways to discharge your debt and find the financial relief you have been looking for.

Working with a Bankruptcy Attorney to Help Consolidate Debt

At RHM LAW LLP, we will help you explore all of the debt relief options available to you. Though we specialize in bankruptcy law, we do not suggest bankruptcy as an option if we do not think it is the best option for them. We are committed to helping our clients resolve their debt problems, achieving true debt relief and avoiding potential debt consolidation scams. Contact us for a free consultation.

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