05 Oct Is Bankruptcy The Only Way To Deal With Debt?
Is bankruptcy the only way to deal with debts? Not necessarily. But, as with so many things, the answer to this question takes knowledge and experience. I will set out some of the options that can be available in dealing with your debts and will discuss these options a little more in depth in subsequent posts.
Typically, there are four ways to deal with your unsecured debts.
First, there is bankruptcy. As a general rule, if you have a significant amount of debt and your creditors are hounding you, bankruptcy often is the most efficient and expeditious way to handle all of your debts. Often, bankruptcy case can be the least expensive and easiest way to deal with your creditors. It can also achieve a finality that other options may not possess.
A second option is to attempt to negotiate with your creditors and reduce your interest rates and payment amounts. You can attempt to do this yourself or you can hire a third party to do this for you. These types of plans are often called â€œdebt management plansâ€ or DMPs. Generally, a DMP will work with your creditors and achieve some rate reductions or other concessions so that it is more affordable for you to pay back your debts. The DMP will require a payment every month and retain a portion as a fee and disburse the remaining money to your creditors every month according to a negotiated plan. The creditors will often allow the DMP to retain a portion of the creditorsâ€™ money as the creditorsâ€ â€œfair share.â€ If you are considering this option, you should look for organizations with a local office and are part of the National Foundation for Credit Counseling.
A third option is a debt settlement agency. We have written extensively on debt settlement on this site and generally do not approve of this method as Doug Jacobs explains. But, a debt settlement agency will take your money every month and retain a portion of it as their fee (typically 15% of the outstanding debt). They will hold your money in an account until you have enough in the account to make offers to settle the account with the creditor for less than what is owed. One of the problems of debt settlement plans is that you will often pay substantially more than if you filed bankruptcy. Another will be that, will you are paying the debt settlement, your credit is trashed just as much (most of the time) as if you had filed bankruptcy. I generally do not favor debt settlement except in certain, limited situations.
A fourth option for dealing with your creditors is to wait for the creditor to sue you. Most folks would rather not get to this stage. However, this can sometimes be a viable option. For example, in North Carolina, we have the toughest laws in the country in how a debt buyer may collect in this state. A debt buyer purchases old, charged accounts and attempts to sue in court to collect the money. If the creditors are largely debt buyers, I will often recommend litigation as a strategy because we can often obtain a dismissal of the lawsuit. On top of that, we can often get some money for the client and get my fees paid because the debt buyer often violates our debt buyer law.
A final option is what I call the â€œdo nothingâ€ option. Before embarking on this option, you need good legal advice from a qualified attorney. If you â€œdo nothing,â€ the creditor could ultimately sue you in court and get a judgment against you. In most states, with a judgment, the creditor can garnish your wages. This is not attractive for most people. In North Carolina, we do not have wage garnishment so we are not as concerned. However, for people whose only income is Social Security benefits, those benefits may not be levied upon by the creditor. Also, most states will allow you to exempt a certain amount of property. If you do not have more than what you may exempt, you may be â€œjudgment proofâ€ meaning that there really isnâ€™t a lot the creditor can do to collect from you. But, a judgment is valid for ten tears and often can be renewed for another ten years so if you take this option, a judgment could be around for a long time.
In upcoming posts, we will discuss these options in more detail. Stay tuned!
Adrian Lapas, Esq.
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