One of the most commonly asked question we get here at Debt Relief NW, Inc. is…

“When or at what point is bankruptcy my best option?”

For over 10 years now, we have been helping people avoid bankruptcy through debt settlement.

While debt settlement is not the answer to everyone’s financial problems, many times the traumatic and gut wrenching process of bankruptcy can be avoided through debt settlement.

When we interview someone to determine the best course of action based on  their specific circumstances, there are basically 3 options for most people:

Debt Management

The credit industry figured out that if they only charge you a very small monthly minimum payment coupled with a large interest rate, late fees, over-the-limit fees and an annual account fee, they (the credit card company) would make 3-4 times the original amount they let you borrow!

The goal of the credit card industry IS NOT for you to pay off your debt! 

The goal is for you to be paying small minimum payments for many, many years!

In a debt management program (sometimes still referred to as “credit counseling”), a person who is barely making the minimum payments on their credit cards and other unsecured debts (store cards, personal lines of credit, pay day loans, etc.) will enroll all of those debt with the debt management company.

They will usually be required to have a payment that is approximately 2.5% of their total indebtedness. For example, let’s say you have several cards and personal accounts that total $25,000.

In a debt management program, your single monthly payment would be approximately $600-$625 per month for approximately 4 years or so.

This is a great way to get your credit accounts under control and have a day in the future when you can finally be DEBT FREE!

But, what if you cannot afford the minimum payment required by a debt management company?

Debt Settlement Program

A prospect for a Debt Settlement Program usually fits into one or more of the following scenarios:

• They have too much debt and cannot keep up with the minimum payments.
• Some or all of their accounts have gone (or are about to go) to a collection agency.
• They cannot afford the payment required of a Debt Management Program.
• They want to avoid bankruptcy if at all possible.

In a Debt Settlement Program, your current creditors WILL NOT be receiving normal monthly payments.

Instead, your accounts that have become delinquent will be/or have been charged off and sent to a collection agency for collection.

After a thorough financial consultation, the debt settlement counselor will evaluate what you can reasonably afford to set aside monthly into a Client Reserve Account.  As this account grows, the debt settlement company will be contacting you creditors and/or collection agencies to negotiate settlements.

Depending on several factors, settlements may be negotiated with a one-time payment from the funds accumulated in your reserve account or a term-settlement may be negotiated whereby the collector agrees to a reduced settlement paid out over a specific period of time.

Once the settlement agreement has been completed, the collection agency or creditor will contact each of the 3 major credit reporting agencies (Experian, Equifax and Transunion) to report that the account has been paid-as-agreed.

Over time, as your accounts are settled, you credit score begins to improve.

But what if you cannot afford much more that a small monthly deposit to the reserve account or nothing at all?

This is where Bankruptcy becomes a “tool” to protect you from creditors who choose to:

•     Seek Wage Garnishment
•      Levy a Bank Account
•      Place a Lien on your property

If you are considering bankruptcy, you should consult one or more attorneys who specialize in bankruptcy.

Bankruptcy should not be viewed as a “get out of jail Free Card”, but rather the last and only option when faced with insurmountable debt.

When you have so much debt that you are not able to keep up with the minimum payments, your options are limited:

• Debt Management (or credit counseling) Program
• Debt Settlement Plan
• Bankruptcy

When is bankruptcy the best option?

Let me briefly explain how the first two options work:

DEBT MANAGEMENT PROGRAM

A Debt Management Program is a program designed for those who have substantial unsecured debt (mainly credit cards) and realize that even though they are making the required minimum payments, the balances are barely going down!

The average person will take 10-15 years (some experts estimate longer) to repay credit card debt.

And when and if it is repaid, the average consumer will end up paying back 3-4 times the original amount that they borrowed!

Think about that... If you have say, $20,000 of credit card debt and are just barely making the minimum payments, you could end up paying back $60,000 to $80,000!

In a Debt Management Program, you will have:

• One low monthly payment
• Reduced or sometimes even 0% interest rates!
• Waived late fees (usuallyl)
• Eliminated your debt in about 4-5 years, saving thousands of dollars in interest and fees!

What if you cannot afford the typical 2.5% payment required of a Debt Management Program?

If you cannot afford the payment of a Debt Management Program, then you should consider a DEBT SETTLEMENT PROGRAM.

In a Debt Settlement Program, you will have:

• One low monthly payment (determined by your financial situation)
• Debts negotiated at approximately 50% of the balance
• Eliminated your debt in just 3-5 years, depending on an individual's circumstances

What if you cannot afford the reduced monthly payment of a Debt Settlement Program?

If you cannot afford the payment required of a Debt Management Program or a Debt Settlement Program, bankruptcy may be your best option.

There are basically 3 areas to examine in order to deteremine if bankrutpcy is the best option:

• Financial
• Ethical
• Legal

By the time you are considering bankruptcy, you should have already explored a Debt Management Program and a Debt Settlement Program, and determined that you cannot afford either of the reduced monthly payments. You have explored the FINANCIAL aspect of determining when bankruptcy is the best option.

But what about the the ETHICAL aspect of bankruptcy?

In most cases, getting to the point of bankruptcy is not your fault.  Maybe you:

• Lost your job
• Lost a spouse or loved one
• Sufferred a major illness or injury
• Went through a terrible divorce
• Or, many other reason too numerous to list

The point is, most people do not get to the point of bankruptcy from just spending too much.

No matter how you look at it, bankruptcy is basically saying, "I cannot keep my promise to repay my debts." It an tremendously emotional decision, and one that can have lingering effects for years.

Before you seek a bankruptcy attorney's counsel, ask yourself if there is any way you can repay your debts WITHOUT going bankrupt?  Can you:

• Ask for help from friends or family
• Get a second job
• Make cost saving/budget cuts or even create a crisis budget
• Sell some of your "toys" (extra car, boat, RV...)

I am not an attorney, so I am not goint to give any legal advice. To explore the LEGAL aspects of filing bankruptcy and to see if you qualify for either Chapter 7 or Chapter 13 bankruptcy, you need to seek the help of a qualified bankruptcy attorney.

There are many factors to consider when determining if bankruptcy is the best option. We can help you make the best choice with a FREE no obligation consultation with one of our Debt Solutions Specialists.  Click on the link below or simply give us a call at 1-877-492-4109

Have you ever wondered about what is the difference between a chapter 7 and a chapter 13 bankruptcy?  This post will help clear up the confusion!

DO NOT take the information to follow as legal advice!  Before making any decisions, you should consult an experienced, licensed bankruptcy attorney. 

Chapter 7 bankruptcy is a liquidation form of bankruptcy. 

This means all of your non-exempt assets get sold and the proceeds are shared amongst your unsecured creditors. 

However, many of your assets will be classified as "EXEMPT", and will not have to be sold if they fall under the following guidelines: (again, these change all the time, so make sure you consult a licensed bankruptcy attorney!)

Few examples of exempt assets:

How do you value your property?

The rule of thumb is to use garage sale prices, although current events can cause certain items’ value to sky rocket and the Trustee will sell it for what he or she can receive and not what you think it is worth.

It is important to know which debts get discharged in a Chapter 7 bankruptcy and which will remain after filing. 

After the bankruptcy completes (which is usually 4 months if there are no non-exempt assets or a minimum of 10 months if there are non-exempt assets) you receive a discharge.  This means you are no longer responsible for paying those dischargerable debts.

In most cases, a Chapter 7 bankruptcy is more attractive than Chapter 13 because it is much shorter time commitment and you don’t have to give up all future disposable income for 3-5 years. 

But what if you do not qualify for a Chapter 7?

Then you would most likely file for a Chapter 13 bankruptcy.

A Chapter 13 bankruptcy involves paying your creditors back over a period of 3-5 years.  You take your monthly expenses away from your monthly income, what is left over is called disposable income. 

The entirety of that disposable income, a minimum of $100 will get paid to your unsecured creditors. 

At the conclusion of your 3-5 year period, what they have received is all that they get and the rest of the unsecured debt is discharged.  If you pay your creditors back in full prior to the 3 to 5 years finishing, than your case closes since there is no longer any debt to administer.

You only want to file a Chapter 13 bankruptcy if either you can’t use Chapter 7 or a Chapter 13 would give you an advantage.  A Chapter 13 must be used if you make too much money under the means test to qualify for a Chapter 7 bankruptcy or you have filed a Chapter 7 bankruptcy within the last 8 years. 

You gain an advantage from filing a Chapter 13 bankruptcy if you need to catch up on back mortgage payments or you have certain tax or domestic support debts.  There are other reasons to file a chapter 13 and I would strongly recommend consulting a licensed bankruptcy attorney if you are contemplating filing.

One last important difference between these two chapters of bankruptcy is what happens if you want to quit the process. 

A Chapter 13 bankruptcy is a form of voluntary repayment, which you can stop at any point.  There will be no penalty, just all the debts will once again come due and you will have lost the protection of the automatic stay. 

A Chapter 7 bankruptcy is a liquidation form of bankruptcy and once initiated continues until the Trustee is finished.  This is true even if you voluntarily give up your right to a discharge, fail to make a payment, or fail to take the required classes.  You have the right to give up your discharge, but that does not prohibit the Trustee from continuing to administer your estate and sell your non-exempt belongings. 

Bankruptcy should only be filed if you are aware of the risks and benefits.   Most bankruptcy attorneys offer free one hour initial consultations, I’d urge you to call one in your area before deciding which chapter to file.

Are there alternatives to bankruptcy?

Yes.  You may qualify for:

Debt Management or Debt Settlement

Call today for a FREE CONSULTATION.

Written by Noah Bishop of Gresham Family & Bankruptcy Law

Making the choice between BANKRUPTCY and DEBT SETTLEMENT can be a daunting task.  The fact is, one is not the clear winner.  The option you choose will depend on several factors.

Here are some guidelines to determine whether Bankruptcy or Debt Settlement is the right choice for you. 

DON'T THINK OF BANKRUPTCY AS A "GET-OUT-OF-JAIL-FREE-CARD"!

As I research and blog about the debt settlement industry I'm in, I see too many sites that seem to say that Bankruptcy is an easy way to START OVER.

That statement is both True and false.

Before we look into when you should choose Bankruptcy over Debt Settlement, just remember this...

Bankruptcy is a statement that you cannot pay the debts you owe.  Say what you will, that is a hard thing to admit and can cause severe personal turmoil.  Although most people who have to seek bankruptcy protection from creditors do so as a last resort, it is still a very big and tough decision mentally.

DEBT SETTLEMENT IS NOT THE SAME AS BANKRUPTCY

Whether you qualify for a chapter 7 or 13 (personal bankruptcy), you are basically walking away from the debts you have incurred.  Your creditors get paid back very little, if anything on the money they originally loaned you with your promise to repay!

With DEBT SETTLEMENT, your creditors will get paid back approximately 50% of what you owe.  This is better for you because it shows that you made an effort and paid back at least a portion of what you owed.  Down the road, it will be easier for you to get credit when you need it.

BANKRUPTCY WILL SHOW ON YOUR CREDIT REPORT FOR UP TO 10 YEARS!

Make no mistake about it, bankruptcy will have an major affect on you and others!

You may not be able to rent an apartment for up to 2 years following a bankruptcy!

Many employment opportunities will not be available to you if you must state that you have declared bankruptcy in the past or if your prospective employer does a credit check!

Bankruptcy HAS A VERY NEGATIVE impact on your credit score!

In the long run, your credit and credit rating will not be as damaged through DEBT SETTLEMENT as it will be through BANKRUPTCY.

After a debt is settled, the credit reporting agencies:

• Experian
• TransUnion
• Equifax

...will show the debt with a $0 balance and "paid-as-agreed" or "paid-for-less-than-the-full-amount".

When your credit report shows that you have done something to take card of your outstanding debts, it will (believe it or not) start to improve rather quickly!

SO, DEBT SETTLEMENT IS ALWAYS BETTER THAN BANKRUPTCY?

NO!  Again, debt settlement companies that only offer debt settlement have to say that, but it is just not true!

Reputable Debt Settlement companies will discuss all of your options so that you can make the right choice!

After 10 years of helping people get out of debt, I have found that in 99.9% of the time, the client found themselves in severe financial trouble from several circumstances of which they had no control.  Such as:

• Loss of job and income
• Divorce
• Illness and/or disability
• Cut back on the hours of employment due to bad economy
• Forced retirement
• Fixed income that cannot keep up with inflation

At first, you use the credit cards to "JUST GET BY", with the intent on repaying them when things get better.  However, in many cases, things don't get better and now you cannot keep up with the minimum payments.  Then:

• Collectors start to call several times a day (HOW TO STOP CREDITOR CALLS)
• You may be served a SUMMONS demanding payment

You may qualify for a DEBT MANAGEMENT PROGRAM

In a Debt Management Program, you will...

• Have ONE MONTHLY PAYMENT (it may or may not be lower than the total of the minimum payments you now have)
• Have interest rates and late fees are usually lowered or forgiven
• Usually pay back all of your creditors in 48 months or so
• Have improved your credit scores after your balances are $0

But, they question is, can you afford the MONTHLY PAYMENT?

If not, then you need to look at DEBT SETTLEMENT:

• One monthly payment (a payment you can afford based on your circumstances)
• Creditor call slow down and stop
• Creditors are paid a percentage of the debt owed (avg. 50% plus or minus)
• Once your creditors have agreed to a settlement and it is completed, your credit report will show a $0 balance and start to improve

Ifyou cannot even afford the Debt Settlement payment, then you need to consult a BANKRUPTCY ATTORNEY, but be careful!  Not all attorneys specialize in bankruptcy and as the bankruptcy laws seem to always be changing, you must find one that is an expert!

STILL NOT SURE?  WE CAN HELP!  Give us a call at 1-877-492-4109 or simply click on the link below for a FREE Evaluation.

Just the word BANKRUPTCY sounds terrible! Before you decide if bankruptcy is best for you, here are 3 ways to avoid bankruptcy:

One of the most popular financial-advice gurus today is Dave Ramsey.  He has stated that BANKRUPTCY is one of the top five life-altering negative events a person can experience:

• Divorce
• Severe illness
• Disability
• Death of a loved one
• Bankruptcy

I'm not sure I totally agree, but most people will do whatever it takes to avoid bankruptcy. Bankruptcy basically means that you have taken on too much debt and cannot repay.

I have counseled hundreds of people in financial trouble for many years and it has been my experience that most people who are in serious financial debt got that way from circumstances beyond their control, such as:

• Loss of employment
• Illness or disability
• Death of a spouse or life partner
• Too little income after retirement

Here are 3 Ways To Avoid Bankruptcy

#1 Figure out where your money is going

The first thing you should do to avoid bankruptcy is to take time to complete a Budget or Financial Worksheet.  It sounds so simple, but most people I counsel have no idea what they are spending each month. All they know, is there is not enough money to pay for everything.

You have to know exactly where you stand, financially.  How much money is coming in and how much is going out each month.

I know it's very, very tight, but ask yourself if there are areas of your life or expenses that you could reduce or eliminate, such as:

• Do you have a large car payment? Maybe you could downsize or refinance to reduce your monthly payment.
• How about all those lunches, coffee, lattes?  Can you cut down to a couple times a week instead of every day?  Think of it as a special treat, not a necessity.
• Maybe now is a good time to quit smoking!  I know it's easier said than done, but at well over $100-$150 month it would be good for your budget and your health.
• Do you have to have that health club membership?  Could you work out at home instead to save $35-40$?

Have I made my point? You may be able to find a few hundred dollars each month that could possibly save you from bankruptcy!

#2 Consider enrolling in a Debt Management Program

If cutting your budget won't work, or you have already cut it as far as you can, then perhaps DEBT MANAGMENT (formerly called Credit Counseling or Debt Consolidation) may help.  Debt Management is a program whereby you can arrange repayment of your unsecured debts like:

• Credit Cards
• Store Cards
• Personal Loans
• Private Student Loans
• Medical Bills

You will have ONE MONTHLY PAYMENT which is divided and sent to each of your creditors per the agreement arranged with them by a DEBT MANAGEMENT COMPANY. The program is usually designed to repay 100% of your debt over 3-5 years.

The problem is that you may not be able to afford the monthly payment which is usually about 2.5%-2.7% of your total unsecured debt. Do a quick calculation to see if that fits into the budget you created in step 1.

Sometimes, the debt management payment may be higher that the very low (almost impossible ever to repay in your lifetime) minimum monthly payments that credit cards require! If you cannot qualify for Debt Management, then your next option is:

#3 Settle Your Debts for Less with a Debt Settlement Program

In a DEBT SETTLEMENT PROGRAM, negotiations are made with each of your creditors to accept much less (often 50% or less) of the balance.  You will be making a monthly contribution to a FDIC Reserve Bank Account where your funds accumulate for settlement offers.

Depending on several factors, you may able to not only GET OUT OF DEBT in 24-48 months or less, and you will avoid BANKRUPTCY.

Although you can negotiate with creditors on your own, it is not easy! We have been helping clients negotiate and settle debts for over 10 years.  Is DEBT SETTLEMENT FOR YOU? Find out today!

If cutting expenses, debt management or debt settlement will not help, then you should consult a qualified bankruptcy attorney. Bankruptcy is a way for you to get a fresh start and is not nearly as tramatic as you may think!

People are always asking...

"Does Debt Settlement hurt your credit score?"

Although this is a simple question, the answer is not as simple.

According to the Fair Issac Corporation (FICO), there are several factors that go into determining your credit score:

• Payment History....................35%
• Amounts you owe.................30%
• Length of Credit History.......15%
• Types of Credit......................10%
• New Credit..............................10%

As you can see, 65% of your credit scores seems to depend on your Payment History and How Much You Owe.  In reality, there are several other factors that go into determining your credit score. 

                                     For example, FICO says:

Your FICO credit score is calculated based on these five categories. For some groups, the importance of these categories may vary; for example, people who have not been using credit long will be factored differently than those with a longer credit history.

The importance of any one factor in your credit score calculation depends on the overall information in your credit report. For some people, one factor may have a larger impact that it would for someone with a much different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO^® Score.

Therefore, it’s impossible to measure the exact impact of a single factor in how your credit score is calculated without looking at your entire report. Even the levels of importance shown in the FICO Score chart are for the general population, and will be different for different credit profiles.

If you are considering a Debt Settlement Program, let's assume that you have several unsecured debts and are behind or starting to fall behind on your monthly payments due to anyone of several circumstances.

And, if this the case, you can see from the information above that your credit score has already been affected.

Enrolling in a Debt Settlement Program and finally getting your delinquent account balances to ZERO will ultimately IMPROVE your credit score.

If you decide (or have no choice) but to file for BANKRUPTCY PROTECTION, then your creditors receive little to nothing.

But, once a settlement agreement has been negotiated and the agreement has been completed, your credit report will show a $0 BALANCE and state something like "paid-as-agreed" or "paid-as-agreed for less than the balance due".

In either case, once all of your debts have been settled and you have not charged up more credit, your credit score will begin to improve!

The WORST THING YOU CAN DO IS NOTHING! 

Debt Settlement may help you finally get back on the right track and avoid bankruptcy.

If you would like a FREE CONSULTATION with NO OBLIGATION, CLICK HERE.

So you’re ready to get out of debt once and for all.  The question is, how do you do it and what options do you have.  I’m going to share the options available to you as well as the pros and cons of each. 

Debt Consolidation

PROS:

• Lower interest rates on your credit cards. 
• One REDUCED monthly payment
• Stop harrassing creditor phone calls
• Eliminate your debt in just 3-5 years!

CONS:

• Pay back the full amount owed
• No room for error - If you are late or miss a payment, the creditors will remove you from the program
• Accounts will be closed by the creditor

Debt Settlement

When you enroll in a Debt Settlement program, you are hiring a team of Debt Negotiaion Specialist to work with your creditors and settle your debt for less than what you owe.  Debt Settlement is an excellent option for someone who has fallen behind on their monthly payments an is trying to avoid bankruptcy.  You can include unsecured debt such as Credit Cards, accounts in Collections, Repos, and Medical Bills in a Debt Settlement Program.

PROS:

• You will eliminate your debt for much less than what you owe
• You only have to make one small monthly payment
• It will improve your credit over time much faster than going through bankruptcy

CONS:

• May hurt your credit score
• Creditors may continue to call you
• Debt Settlement cannot help with secured debt such as a home or car loan

Bankruptcy

Bankruptcy is the process of declaring yourself unable to pay off your debts.  This does not mean it will get rid of all of your debt but most of it.  The typical bankruptcy for consumers is Chapter 13.  This is where lawyers will negotiate with your creditors and collection agencies to pay back less than what are owed.

PROS:

• You pay less than what you owe.  The typical amount you will pay back on any certain debt will be anywhere from 30 to 80 cents on the dollar.
• They work a payment plan out for you.  This will allow you to creditors back over period of time.

CONS:

• Hurts your credit for the next 7 years from the point of discharge.  You will not be able to get a loan of any kind.
• Costly.  Bankruptcy can cost a lot of money.  If you’re already in a lot of debt it may be tough for you to come up with the money to even go through this process.
• Bankruptcy is also very time consuming.  Don’t expect the process to go very fast.  In most cases it will take several years to pay back all of your debts.

Would you like to learn more about what option is right for you?  Our Solutions Specialist can work with you to determine which option best fits your financial situation. 

For a FREE no obligation consultation,

give us a call TODAY!

1-877-492-4109

photo by: Helga Weber