Chapter 7: The 99% Solution

What is the most effective solution to a serious debt problem?  Without a doubt, Chapter 7 remains the single most effective way to eliminate debt.  What is the success rate of chapter 7 cases? In reviewing 172 cases filed by our firm since January 1, 2014, clients received a discharge in all but three cases.  Of those 3 cases where no discharge was entered, two of them converted to chapter 13 since their income was declared to be too high to be eligible for chapter 7 relief and they will receive a discharge when they complete their payment plan.  The remaining case was voluntarily dismissed after the client incurred significant unplanned medical bills during her case. After her case was dismissed she filed a new case and received a discharge. To summarize, 100% of the clients who filed chapter 7 obtained bankruptcy protection, and 99% of the cases received a chapter 7 discharge. There simply is no more effective way out of debt.  Chapter 7 relief is immediate.  The moment a case is filed a federal protection order comes into place that immediately stops garnishments, collection calls, lawsuits, and all other forms of collection.  On average, cases were discharged in 102 days. Success Rate of Chapter 13: A Chapter 13 case is a payment plan completed over 3 to 5 years.  A review of the first 210 cases filed in 2006 indicates that 58% of those cases were discharged. When you factor in that 19 cases were converted to chapter 7, the discharge rate increases to 67%. That is actually an amazing statistic considering that a dramatic overhaul of the bankruptcy law took effect in October 2005 and attorneys were working with an entirely new law. The success rate of Nebraska chapter 13 cases  is significantly higher than the national success rate of 36% reported by law professor Katherine Porter in her article, The Pretend Solution: An Empirical Study of Bankruptcy Outcomes.  Much of that success is attributable to our Chapter 13 Trustee, Kathleen Laughlin, and the Nebraska bankruptcy court for making the process work. The success rate of chapter 13 does not include those cases converted to chapter 7. So the real success rate may be higher depending how we define “success” in bankruptcy. Also omitted is a list of those cases dismissed the first time around but that were eventually refiled with a successful result. Success Rate of Consumer Credit Counseling Debt Management Plans: Measuring the success rate of Debt Management Plans (DMP) is difficult since, unlike bankruptcy court records, there is no public data to review.  However, a poll conducted by the National Foundation for Credit Counseling indicated that only 21% of the repayment plans were completed. To be fair, the poll indicated that another 21% withdrew from the repayment program to manage the payments on their own but there is no data as to whether they were successful. The chief stumbling block to the program is that the payments were not affordable. Success Rate of Debt Settlement: This is the darkest area of the debt management industry and there is no hard data available to show how many plans have been completed.  It is generally believed that the success rate of these programs is less than 10%. Need help sorting out debt repayment options?  Click here for help. Image courtesy of Flickr and Dan Moyle.