Joseph and Carol, a married couple make an appointment with you to discuss their financial situation. The following is the information that they provide to you:

Question

a. They own their own home, and have an adjustable rate mortgage, which has just adjusted upward, increasing their monthly payment by $900.00;
b. They also have about $10,000.00 in credit card debt with two different credit card companies;
c. They have two cars, with no monthly car payment; and
d. Their combined salaries are over $100,000.00; and
e. Their combined credit scores are excellent.

Assess whether or not Joseph and Carol should file for bankruptcy. Additionally, what are some potential alternatives available to them?

Answer 1

Given their income, credit scores and unencumbered assets, it is unlikely that Joseph and Carol are eligible to file for a Chapter 7 Liquidation. Chapter 13 Individual Debt Adjustment would restructure their debt, but it does not seem substantial enough to warrant a bankruptcy. They should focus on repayment of their unsecured credit, and can contact the companies to see if interest rates on cards can be lowered. They should also consider obtaining lower or no interest credit cards and transferring balances. They should consider refinancing their home mortgage with a fixed rate mortgage, the interest rate on which may be lower than that being paid on credit card balances. Credit counseling services should be sought.