To File or Not to File: Attorney decision making
When you meet with an attorney to discuss your debt and the options for relief from the weight of that debt, he or she should engage in a decision making process. Some attorneys tend to keep that process to themselves (this is more of a style thing for the lawyer), and others, like myself, try to explain and educate the client. While I cannot lay out every twist and turn that the discussion may take with any particular situation, I will put forth a few basics.
I typically start with an overview of the debt which includes the numbers of different creditors as well as the amounts of debt. Part of this inquiry involves what debts are secured and unsecured. If there are secured debts (a lien or mortgage is filed on some sort of property), I look at whether the client is behind on those debts and whether they wish to keep the property securing the debt.
If there is one primary debt that is creating the financial consternation, then I pursue questions about whether there is any deal that might be worked out with them. Some creditors simply dig their heels in and refuse to accept payments or refuse to reduce the debt to a manageable level. But, if they will work with the debtor on a reasonable and feasible repayment plan, then that is often the best way to proceed.
However, if there are jseveral creditors where the debtor has fallen behind, working out multiple deals to avoid bankruptcy just will not work. There is always one creditor that throws a wrench into such a process; if any single creditor refuses to work out a deal, then working with the other ones becomes futile. The one creditor that refused to work something out and so files suit would create a snowball effect because insufficient funds would be available to successfully pay all the people who did negotiate a deal.
If the debtor is behind on secured debts and they want to be sure to keep the assets, then I must look at a Chapter 13 as the most likely way to make that happen. This leads to my second primary consideration of income. Regardless of whether a Chapter 13 is likely, I must look at the disposable income of the household (even if only one person is filing). This inquiry gives me two key pieces of information: 1) is there left over money after necessary living expnses are paid that can fund a Chapter 13 or a work-out deal, and 2) could the debtor qualify for a Chapter 7 instead.
At this point, I have a good idea of the recommendation I am likely to make. If there is only one creditor who is a problem and there are some spare funds to make payments, then it is good to attempt a work-out with them. If there are multiple creditors or the one creditor refuses negotiations, then a bankruptcy will be inevitable. If there are assets with liens that the person wants to keep or the household income is pretty high, then I probably steer towards a Chapter 13. In all other circumstances, a Chapter 7 serves best.
As a tangent to all of the above for business owners, I look at whether the debt is primarily consumer debt or primarily business debt.I will take this inquiry up in a separate post. But, this is a glimpes into the process I use to help people in debt trouble navigate their way to being financially healthy.