Why Do You Need A Debt Settlement Attorney
Bankruptcy is not always the best option to help you manage overwhelming debt. Sometimes, debt settlement may be a more practical or attractive choice. Debt settlement can help by reducing the amount you or by providing more manageable repayment terms. When we meet with you for the first time, we’ll go over all of your options, including bankruptcy. If you decide that debt settlement is the best option for you, our attorneys will negotiate for you to get the best terms possible.
What Is Debt Settlement?
When I talk about debt settlement, I am talking about asking the creditor to accept less than what you owe under the terms of a contract. So, if you owe $1,000, for example, you’re asking them to take $500. In exchange for the $500, they agree to release you from any other obligation.
Debt settlement can be a better option than bankruptcy if your debt is relatively small compared to your income. Debt settlement may also be a better idea if you have significant assets that would be sold or liquidated in bankruptcy. This is usually the case when someone has a great deal of equity in their home. If the client has transferred significant assets to family members or other persons within the last four years without being paid for the transfer, debt settlement may also be the better route.
One big obstacle in the way of successfully settling debts is that the lender usually wants the settlement amount immediately. Sure, they’ll take less than what you owe, but it needs to be paid ASAP. If you can’t manage that, debt settlement is probably not in your future.
Unlike bankruptcy, however, debt settlement carries with it certain tax consequences. For example, if you owe a creditor $10,000 but it is willing to settle the debt for $5,000, the $5,000 in forgiven debt may be taxed as income the following year. We’ll be happy to explain all of the pros and cons of both debt settlement and bankruptcy.
Debt Settlement vs. Debt Consolidation
Another option people who are trying to get their debt under control is debt consolidation. Basically, you get a loan to pay off all of your other loans. Sounds like a good idea, doesn’t it?
This is my least favorite ways to deal with debt.
Time and time again, I talk with people who have tried this. I can almost always tell when, too. When we go down their list of debts, they have an unsecured loan that is approximately the same amount as their credit card debt. What happened? They got the consolidation loan and paid off the credit cards, and then they turned around and charged up the credit cards.
Now, they have twice the debt they had a year ago. While a year ago they might have been able to avoid bankruptcy, now it’s almost inevitable.
What should they have done? First, they should have given some thought as to why they had so much credit card debt. Were they using the credit cards for necessary items? Did they change their spending habits after they paid off the cards? Second, I would have suggested they close the credit cards accounts to avoid the possibility/temptation of using them. With the cards open, they can go back to the same habits that got them in all the credit card debt to begin with.
Debt Settlement vs. Debt Management
Debt management is when you hire someone to negotiate a more manageable plan payment. Typically, instead of paying your creditors directly, you hire a third-part company to make those payments. You send the debt management company a payment, they deduct their fees, and the rest goes to your creditors.
Over the years, I’ve noticed several problems with working with these companies.
First, debt management companies usually don’t deal with all types of debt. They may not deal with medical bills, for example. One advantage of debt management that those companies like to sell is that their clients only have to make one payment. Of course, if they don’t deal with all of your debts, you won’t be able to do that.
Second, not all creditors deal with debt management companies. Let’s say you have five credit cards but only four of them will agree to the payment terms the debt management company negotiated. If you’ve stopped making payments to that fifth credit card, that lender is going to move forward with debt collection. Debt collection quickly turns into legal action. Legal action quickly turns into paycheck garnishment. Suddenly your paycheck is lighter and you can’t afford to make payments to the debt management company and things have really started snowballing.
Third, some of these companies are out and out scam artists. They take their clients’ money and don’t do anything. The client doesn’t realize it until process servers show up at their door. Caveat emptor. Research your debt management company carefully.
Debt Settlement vs. Bankruptcy
Look, I get it. You don’t want to file bankruptcy. I don’t want you to file bankruptcy either. What I do want, though, is for you to not be stressed out about how to make ends meet.
And while bankruptcy might not be a great option, it might be your best option.
Chapter 7 bankruptcy can completely eliminate debts like credit cards, unsecured loans (e.g. payday loans), medical bills, old apartment leases, and utility bills. Most people get through the Chapter 7 process without turning over any money or personal belongings to the bankruptcy court.
If Chapter 7 bankruptcy isn’t an option (usually because your income is over the income limits for Chapter 7), you can enter into a repayment plan to pay your creditors over a three to five year period. Bankruptcy allows you to reorganize all of your debt and requires all of your creditors to abide by the repayment plan.
Why A Bankruptcy Attorney Might Be The Best Professional To Settle Your Debts
Negotiating debt is always about leverage. Before a creditor will consider taking less than what you owe, they have to be convinced that it’s in their best interest. Hiring a bankruptcy lawyer to negotiate your debt means that you’ve reached the end of your options. If the lender is unwilling to accept what you offer, they know that they might not get anything if you follow through with your threat to file bankruptcy.
Also, you want to make sure that the settlement “sticks”. Any settlement agreement you enter into should state that the creditor is accepting the payment in full satisfaction of the debt. An experienced debt settlement lawyer can make sure that “zombie debts” don’t show up years later, just when you thought you had put them far behind you.
Talk To An Experienced Denver, Colorado Debt Settlement Attorney
If you have questions about how debt settlement or bankruptcy might help you, we hope you’ll come in for a free, no obligation consultation with an experienced debt settlement attorney. You can schedule an appointment by calling 303.331.3403 or by using our online scheduling system.
Check out our client reviews on Google, Facebook, and Avvo!