I woke up unreasonably early one morning earlier this summer and turned on the television. A random morning show was playing on the station I had fallen asleep to the previous morning (these are wild times for a bankruptcy attorney…)
Anyhow, as I was about to change the channel, a segment on money matters began that caught my attention.
The Debt Negotiator “Expert”
An “expert” debt negotiator was discussing why debt relief settlement is superior to bankruptcy. The more I listened, the more frustrated I became about the misinformation that was coming from this man’s mouth. The segment essentially was a thinly-veiled advertisement for this specific debt settlement company and he was misleading people about the so-called benefits of debt settlement and the negatives of bankruptcy.
Viewers provided a few good questions that included:
1. When should someone consider bankruptcy?
2. What are better options?
The “expert” claimed that bankruptcy should be a last resort.
Should bankruptcy really be a last resort?
Yes, bankruptcy is not something anyone should jump into without it being an appropriate and necessary measure. However, bankruptcy has innumerable benefits that a negotiation company cannot claim.
Below is a short list of benefits unique to bankruptcy:
1. Bankruptcy is based on federal law
2. You are protected by the Automatic Stay provision from lawsuits, garnishments, foreclosures, repossessions and creditor calls
3. Your creditors must participate and abide by court orders
4. You will not have a cancellation of debt tax liability
5. Bankruptcy is often less expensive than debt negotiation
6. In certain situations, you can remove a second mortgage from real estate
Qualifying for bankruptcy
The “expert” also claimed that most people don’t qualify for Chapter 7 anymore due to the enactment of BAPCPA. This is simply not true. People still qualify. In my practice, most of my clients file Chapter 7. The 2005 BAPCPA amendments to the United States Code created something called the means test which requires a Chapter 7 debtor to fall under a certain income threshold. The threshold is based on household size. Although the means test makes the filing process more complicated, those who need protection often qualify. The key is to speak to a qualified bankruptcy attorney who can help you navigate the process and explore options with you.
Avoiding lawsuits
The “expert” also indicated that with the debt settlement, you simply offer to pay what you can afford. What he did not mention is that what you offer may be different from what your creditors expect or demand. When there is a difference, your creditors may, and often do, proceed with lawsuits.
Common debt dilemma
What I can tell you is that I commonly see the following situation:
- A person participates in a debt negotiation program.
- They pay high fees to a company to resolve their financial issues.
- They pay into the program for a certain number of months and then receive a lawsuit in the mail for debt that was included in the program.
- Bankruptcy becomes necessary and something that should have been done from the beginning.
- Time and money have been lost.
I see this over and over and over again.
Everyone wants to “do the right thing.” The right thing may be bankruptcy. If you have questions, please book a free call and I can advise you of your options.
