Ive handled many Chapter 7 Bankruptcy cases for clients in Staten Island, as well as everywhere across New York. One of the things that I notice the most when a potential Chapter 7 client walks into my office is that clients emotions. What I mean by that is whether theyve accepted the fact that it is literally mathematically impossible to pay off the amount of debt they have, and therefore that Bankruptcy may be the only realistic solution for them. I just wish that many of these individuals were able to discover that sooner, as it could have saved them literally thousands of dollars.
Here is what I mean as an example. If youre someone who makes about $40,000 a year in gross wages (before tax) and you have approximately $20,000 in debt or more, chances are you will NEVER pay off this debt. If you havent missed a payment, you’re like paying the minimum on many of these cards since it would be implausible that youd be paying the entire amount of the balance and living on 40k a year BEFORE taxes. If you’re keeping a balance, youre likely paying a rate of anywhere from 10-20%. If you’ve missed a payment, that percentage likely went up to 30%. If you do the math, there simply is no way at all that you could possibly make a dent in this debt while continuing to support yourself. I understand that there are just so many emotions involved in something like this. Fear, shame, embarrassment. In any case, you need to realize that when you made these purchases that you had every intent to pay them back (I imagine). And many of my clients who have finally come to grips with the fact that they need to file have contacted the creditors, but they are simply unwilling to compromise to payment plans that you can afford.
Also, when you settle a debt, you can be taxed on the amount you save as regular income. So if you settle a 10k debt with a creditor for 5k, you may be responsible for taxes on the 5k you saved as ordinary income.
Look at the end of the day this area of law has more to do with your emotions than anything legal. We are able to get the vast majority of people through a Chapter 7 case in Staten Island, Brooklyn, Manhattan or anywhere in New York with little or no problem. But this issue is an emotional one. Once you come to grips with the fact that there is no way you could possibly pay back this amount of debt you have, the decision can become a much clearer one for you.
