It’s all over the news. Detroit is in bankruptcy, and the effect on many everyday people, as well as businesses, may be huge.
Why?
When a city such as Detroit files for bankruptcy, it is attempting to restructure the debt that it owes. Some of the debt it owes is to former employees whose pensions are dependent on the result. Some of the debt is owed to businesses who have done work for the city. And, of course, as part of Detroit’s reorganization, it needs to re-think the way it does business: how many employees can it pay, how much money will they be paid, what kinds of services can Detroit provide for its citizens, how many police officers and fire personnel it can hire, and on and on.
But it is the restructuring of the debt that Detroit owes that will have the most impact and will determine whether it can survive. And restructuring the debt means that some entities will not receive as much money as they think they are owed. And that is why this matters to many of you.
Many of you can also restructure your debt through Chapter 13 (people and some businesses) or Chapter 11 (mostly businesses). What exactly does restructure mean?
Let’s suppose that you owe $35,000 in credit card debt and medical bills (and we have done reorganizations for people who owe anywhere from $5,000 to hundreds of thousands of dollars). And let’s also suppose that your minimum payments on that $35,000 are about $900 per month. Let’s also assume that you don’t have $900 per month available to pay these creditors, but that you have $250 per month available. In many cases, we can reduce your monthly payment under Chapter 13 from the higher amount to the lower amount, a savings to you of $650 per month, or $7.800 per year, or $39,000 over the five year plan.
Would that help you? Could you then get that car repaired or consider buying a more reliable vehicle? Could you replace those leaky windows? Maybe your kid needs some help at college. Or maybe you can make the mortgage payment on time instead of paying the late fees, thus saving even more money.
Detroit has to try to obtain consent from its creditors to have its reorganization plan approved in a Chapter 9. But for a person like you, filing Chapter 13, approval from your creditors is not needed. It only requires you to file your plan in good faith, that the plan be feasible, that it be your best effort, and that we meet what is called the “liquidation alternative test” (don’t worry–we will explain that to you.) If you meet these tests, and we would not file a plan.unless you do, then your plan will be approved. Period.
So what are you waiting for? Give us a call or visit our website at GoodByeDebt.com and let’s look together at how we can make your financial situation less stressful.