Can I get out of debt without bankruptcy?

25 Apr Can I get out of debt without bankruptcy?

You’ve seen commercials that promise that you can get out of debt without bankruptcy. It’s possible. But not easy. And you’ve probably heard from people like Dave Ramsey that bankruptcy is a horrible evil and that you should avoid it at all cost. Oddly enough, Dave Ramsey himself filed a bankruptcy case years ago when he needed to do so.

You can get out of debt without bankruptcy if you do three things:

  • Earn more money
  • Cut your spending
  • Use all the money you save from cutting spending and earning money on paying debts

When you are paying your debts you must do three things

  • Negotiate lower interest rates from creditors wherever possible
  • Pay the minimum amount necessary on all debts except the one with the highest interest rate
  • Reduce the principal on the highest interest rate first.

If you have credit card debts all of which are bearing interest at the highest rate, if you are suffering judgments and wage garnishments, this tired and true method is going to be very difficult if not impossible. I did the calculations with a client I met last week. Living at the bare bones level provided by his budget, this debtor would require 12 years to repay his debts assuming he maintained his current income level.

His alternative is a chapter 13 plan which would allow him to satisfy all of his debts on an austere but manageable budget over a 5 year period.

Don’t fall for pitches you hear on TV and radio. You don’t have the “right” to a deal pay your creditors off at a fraction. You can try but you’ll need cash that you don’t have. And if you defer paying your credit card debt while you raise cash, you will create defaults, accelerate payments due, incur penalties, late charges and drastically increase your interest rate.

Read the fine print. These plans say they don’t work for everyone. They almost certainly won’t work for you. We have had too many clients who tried this and found that it was only false hope – and they lost lots of money while trying.

We don’t advocate that you go out of your way to file for bankruptcy relief. But you have the right to do so under our Constitution and laws when you need help.

Lakelaw helps people file bankruptcy in Illinois and Wisconsin.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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