Is Debt Settlement a Good Idea?
If you have more debts than you can comfortably pay and a bad case of bankruptcy-phobia, then yes, debt settlement is usually a good idea. Generally, if unsecured debt payments, like credit card payments, exceed 15 percent of your gross income, that debt is difficult or impossible to repay. As for bankruptcy-phobia, many people cling to the myth that a real-life bankruptcy is like a Monopoly bankruptcy. A bankruptcy filing means loss of all assets and the end of the game.
People with excessive unsecured debts have basically two choices. They can keep trying to pay them and get more frustrated every month, or they can partner with a Chicago debt settlement lawyer. An attorney reviews your financial situation and determines all your legal options. Experience in this area is critical, because as discussed below, the debt settlement process often requires good litigation skills as well as good negotiation skills. Only experienced lawyers have this combination of abilities.
Advantages of Bankruptcy
Allow us one last chance to cure your bankruptcy-phobia, which is an unreasonable fear of filing bankruptcy. When financial times get tough, consumer bankruptcy offers several advantages that no debt settlement negotiations could ever produce:
- Asset Protection: Many creditors voluntarily agree to suspend adverse actions, like repossession and foreclosure, during the debt settlement process. But they don’t have to voluntarily do so. A bankruptcy filing triggers Section 362 of the Bankruptcy Code. The Automatic Stay forces creditors to suspend these proceedings whether they like it or not.
- Debt Discharge: As outlined below, debt settlement often significantly reduces the amount of money to be repaid. But when bankruptcy judges close these proceedings, they usually discharge all unsecured debts. “Discharge” essentially means a judge eliminates the legal requirement to repay a debt. Furthermore, the creditor usually loses the right to collect this debt.
- Radical Action: As a rule of thumb, sick people need medicine, and very sick people need surgery. Debt settlement is like medicine. So, it’s for people with manageable financial problems. Bankruptcy is like surgery. It’s designed for people with unmanageable financial problems. So, it’s the only appropriate solution in these situations.
Chapter 7 discharges most unsecured debts, such as credit card debt, in under a year. Chapter 13 does the same thing and also gives debtors up to five years to catch up on past-due mortgage payments or other delinquent secured debts.
Debt Settlement Nuts and Bolts
Bankruptcy is a legal process that begins when a debtor files a voluntary petition. Sometimes, debt settlement is a legal process that begins when, for example, a creditor files a lawsuit. Other times, it’s a non-legal process that begins when, for example, the IRS threatens adverse action.
Debt settlement is most successful when a Chicago debt settlement lawyer has some leverage, such as in irregularity in the lending process. That leverage could also be a general principle, such as something is better than nothing.
An attorney uses this leverage to reduce the interest rate or obtain some other relief. In many cases, this other relief may include partial forgiveness of the UPB (unpaid principal balance).
When these negotiations conclude, an attorney usually replaces the existing loan agreement with another one that reflects the agreed-upon terms. So, the creditor cannot go back on its promises later.
Contact a Thorough Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.
Source:
scholarship.law.upenn.edu/faculty_scholarship/300/
