When the bills stack up and creditors start harassing, the point is clear that maybe something should be done. But what are the options? Following are some of the more common options available to anyone who has debt and no way to pay for it. One option is to do nothing. This is usually not a viable option for most people. When creditors are not paid, they will take action. In the case of “secured” creditors, like a home loan or car loan, the creditor will take back the property. In case of “unsecured” creditors, such as credit card companies, they will file lawsuits to obtain a judgment and then try to collect through wage garnishments or attach judgment liens on property of the debtor. Unless the debtor has no job and no property and has no intention of ever having either, doing nothing is not a viable option.
Debt Management Plans deal with unsecured debt, such as credit cards, personal loans, and medical bills. The basic function of these plans is to negotiate with the unsecured creditors to lower interest rate and rework the monthly payment. One disadvantage with this option is that these companies sometimes do not make the payments to the creditors on time which results in late fees and interest rate increases to the consumer. Another disadvantage is that these companies only deal with unsecured debt. They cannot help with mortgage payments, car loan payments, tax debt, wage garnishments or pending lawsuits. This is strictly voluntary. Creditors do not have to participate in debt management plans.
Filing Chapter 7 Bankruptcy. Bankruptcy is a legal process under Federal Law. Chapter 7 gives debtors a “fresh start.” Most debt is “discharged” (forgiven) in a Chapter 7, and debtors are able to keep all exempt assets. Filing for bankruptcy protection gives debtors the benefit of the “automatic stay.” This prohibits creditors from starting or continuing any collection on the debt. No more harassing phone calls, no lawsuits, no wage garnishments. The process lasts about 3-4 months.
Filing Chapter 13 Bankruptcy. If you have fallen behind on mortgage payments, but would like to retain your home or need to pay tax debt without incurring additional penalties or interest, it may be possible to do so in a Chapter 13. In a Chapter 13, the debtor has to propose a repayment plan. Chapter 13 is similar to debt consolidation but creditors are forced to participate and unsecured creditors are not paid any interest on the balance and no more late fees are incurred. Debtors do not have to come up with large sums of money to get relief from debt because most legal fees are paid through the Chapter 13 plan.
For a free initial consultation regarding debtors’ rights or other related matters, please contact Susana B. Tolchard at 661 -287-9986.