Ask The Experts: Should I Choose Bankruptcy?

Is it better to file bankruptcy or use a debt consolidation service?

I have one question. How should you determine if it is better to file for bankruptcy, or to enlist in a debt consolidation service? - Lisa

Dear Lisa,

It is wise to research all of your options. I recommend that you speak with a trained credit counselor that can help you fully assess your financial situation. It may be possible to establish a debt repayment plan that is agreeable to both you and the lender.

If a repayment plan is not possible, our agency also provides the necessary counseling to allow you to move forward with the bankruptcy process.

Good luck with your decision!


Ask the Experts

Can you explain the difference between a Chapter 7 and Chapter 13 bankruptcy?

We are current on all financial obligations but find our monthly debt exceeds our monthly income. Could you explain the difference between a Chapter 7 and Chapter 13 bankruptcy? How will it affect our house, furniture, cars (the only assets we now have)? Help! I'm feeling hopeless! - Frannie

Dear Frannie,

You are not alone and you will find a solution. Our nonprofit organization counsels thousands of people in your situation each month. I recommend that you visit with one of our trained credit counselors. Credit counselors are not attorneys, but they can help you review your options. You can find more information about the credit counseling MMI offers in the services section of our website. With that being said, I will try to answer your questions to the best of my ability.

Chapter 7 bankruptcy is designed for debtors in financial difficulty that do not have the ability to pay their existing debts. A trustee takes possession of all your property but you may claim certain property as exempt from seizure under governing law. The trustee then liquidates your non-exempt property to pay your creditors according to priorities of the Bankruptcy Code. The purpose of filing Chapter 7 is to obtain discharge of your existing debts, however some debts are not dischargeable under the law.

A Chapter 13 bankruptcy is designed for individuals with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time. You file a plan with the court to repay your creditors all or part of the money you owe them, using your future earnings. The court must approve your repayment plan before it can take effect. Under Chapter 13, unlike Chapter 7, you may keep your property, both exempt and non-exempt, as long as you continue to make payments under the plan. After completion of payments under your plan, your debts are discharged except alimony and support payments and long term secured obligations.

Best of luck with your decision,

Ask the Experts

Do you have a question for the experts at MMI? Submit it here and the answer could be featured in an upcoming Blogging for Change post!

Jessica Horton is a former copywriter and community manager at MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.