Settling Debts vs. Filing Bankruptcy

What Option is Best for You?

by Natasha Meruelo, Esq.

A lot of clients come into my office and ask about whether debt settlement or bankruptcy are best for them. In my opinion, if you are eligible for bankruptcy, bankruptcy is a much better option most of the time. Let me explain why.

If you qualify for Chapter 7 bankruptcy and your assets can be protected, you generally do not have to pay back any of your debt. There are exceptions for tax debts already owed and other priority debts like child support or alimony however credit cards almost never have to be paid back. If you are eligible for this option another benefit of discharging your debt in bankruptcy is that you will not have any income tax consequences. This is because any debts discharged in bankruptcy are excluded from your gross income according to IRS' own rules. In comparison, any debts you settle or which a creditor voluntarily chooses not to collect may cause you to receive a 1099-c and you may have to pay income taxes on any amount in excess of $600 which you were forgiven or did not have to pay. This is known as cancellation of debt income. So, unfortunately, if you choose to settle your debts for less than you owe, you may end up owing the government taxes.

If it turns out you are only eligible to file Chapter 13 bankruptcy, this is often still a much better alternative to settling debts. Just like in Chapter 7 bankruptcy, you do not have the taxable income problem if you receive a discharge. Your money and payments also go further in Chapter 13. This is because generally speaking, you pay your unsecured debts back at 0% interest and often for just pennies on the dollar. If you must pay secured debts in your Chapter 13, then you can often repay them over 60 months, possibly lower your interest rate and pay any arrears you owe on secured debt interest free. If you owe taxes, you can also derive a lot of benefits from Chapter 13 including eliminating penalties, stopping further interest from accruing, amongst other benefits.

Finally, one of the best parts of bankruptcy is the automatic stay. Many times, when you are negotiating settlements or working with a debt consolidator, you may end up getting sued by your creditors and have a judgment entered against you. While this is not fair and may have other legal implications, it does happen. In bankruptcy, all lawsuits and collections must stop and creditors cannot pursue you in multiple ways. They have to stop the harassment and your debts will be dealt with in the bankruptcy court.

So, if you are interested in saving money, avoiding possible tax problems and stopping creditor harassment, bankruptcy can be a very good way to accomplish all of these things.

Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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How Bankruptcy Can Help You Keep Your Car

And possibly lower your payment too

by Natasha Meruelo, Esq.

Most of the time, people think about bankruptcy as a way to help them eliminate their debts and start fresh. But, did you know that bankruptcy can also help you keep your car or even lower the overall amount of money you have to pay for your car?

In Chapter 7 bankruptcy, if your car is less worth than what owe on it, you have the option to redeem your car for its actual value. What does this mean? This means that if your car is worth $5,000 and you owe $10,000 on it, you can pay $5,000 for your car. This is done by filing a motion for redemption. However, you must be prepared to pay your lender that $5,000 immediately.

What if coming up with the funds is too difficult and redemption is not a possibility for you? Well, in that case, Chapter 13 offers you some options that may make this easier. In Chapter 13 you can spread out your whole loan balance in a repayment plan of up to 60 months. So, if you have 2 years left on your loan, you may be able to spread out the balance owed over five additional years. This will lower the amount you have to come up with less each month to pay for your car. In addition, in Chapter 13, you can reduce your interest rate to what is known as the "Till" interest rate which is generally prime plus 1-3%. So, in today's market, that would be about 5.25%. If you purchased your car more than 910 days prior to your bankruptcy filing and it is worth less than what you owe, you may also be able to reduce your loan balance to your cars current value and also reduce your interest rate.

Bankruptcy, especially Chapter 13 bankruptcy, can be an excellent way to help you keep your car and save you some money at the same time. If you are having trouble paying your credit cards or any other debt and are also having trouble making your car payment, make sure to consult with a bankruptcy attorney to compare what options you may have. The relief available to you may be greater than you think!


Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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So Your Bank Won't Give You a Modification? 

You May Be Able to Modify Your Own Mortgage.

 by Natasha Meruelo, Esq.

Sadly, too many homeowners come into my office after numerous failed attempts to work with their bank to modify their mortgage. There can be many different reasons why your bank wouldn't modify your mortgage. Modifications are complicated. Now, new rules require your servicer to explain why you may not have qualified for a modification but perhaps you didn't have the benefit of these disclosure requirements when you were applying for your loan modification.

So, is it possible to take your mortgage into your own hands and modify it? The answer may be yes if like many New Yorkers, you own a property which has a mixed use. The most common example of what I mean is a two or three family home which serves as both a primary residence and a rental property. Many New Yorkers bought into homes with built in rental income in the housing boom of the mid 2000s. Many of these homes have lost an incredible amount of value and are now underwater - that is, they are worth less than what the mortgage balance is.

In Chapter 13, you may be able to cram down the value of your home, even if a first mortgage is involved, if your property is more than just your primary residence. So, let's say you own a two family home that went from being worth $550,000 to $350,000 and that provides you with rental income every month. Well, you may be able to cram down the value of your home to its current value of $350,000 and pay this off over 60 payments at a reasonable interest rate. 

Suddenly, that money you were hoping to allocate to a monthly modification payment may take you even further than you ever thought possible and make you debt free in 5 years.

[Photo credit: Mortgage Rates by Mark Moz]

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How is this possible? Well, I've done it before and Bankruptcy Courts around the United States have interpreted the "anti-modification" section of the Bankruptcy Code (11 USC 1322(b)(2)) to only prevent modification of a mortgage on a property which is solely a person's principal residence and was originally intended to be that person's primary residence. The most recent example of a court taking this position is a case coming out of the Southern District of Florida. See In re Ramirez (Bankr. S.D. Fla. Apr. 4, 2014). We have this case law in New York too.

Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

THIS IS ATTORNEY ADVERTISING