What is Debt Settlement?
Debt settlement is an uncertain process that’s ideal for debtors with severe bankruptcy phobia. Many debtors refuse to consider bankruptcy as a solution to severe financial problems, just like some people refuse to climb on ladders (acrophobic), go into small spaces (claustrophobic), or are afraid of Santa Claus. Debt settlement produces results in some cases, but results are far from guaranteed.
A Chicago bankruptcy lawyer cannot guarantee a result either. But a lawyer can guarantee to leverage all bankruptcy laws, including obscure loopholes few other lawyers know about, to produce the best possible result under the circumstances. Debt settlement is a box of Band Aids that patches up wounds here and there. Chapter 7 and Chapter 13 bankruptcy give distressed debtors a fresh start.
How Debt Settlement Works
Debt settlement works best when a Chicago bankruptcy lawyer sets realistic goals, identifies the proper negotiation party, and uses good settlement practices.
Realistic goals are important in debt settlement negotiations, and all other negotiations for that matter. A new car dealer will not give a buyer a new car, but the dealer will discount the price and offer favorable terms in some cases.
Likewise, a credit card company or other creditor will not forgive the debt, absent clear evidence of serious fraud. But most creditors are willing to give in on important points like the interest rate and payment due date (e.g. many creditors will defer late payments to the end of the note).
Identifying the proper party is not as easy as it sounds. Most delinquent obligations change hands at least two or three times. The most recent debt buyer to correspond with a debtor may no longer own the rights to collect the account.
All negotiations are successful when the party sets realistic goals and has some leverage. With a debt buyer, that leverage is often an inability to verify the account. To most debt buyers, especially if the obligation has already been sold once or twice, the debt is a number on a spreadsheet. That’s not adequate verification, according to the Fair Debt Collection Practices Act.
The bankruptcy bluff is good leverage as well. A Chicago bankruptcy lawyer may know the debtor doesn’t qualify for bankruptcy or is completely unwilling to file. But the debt buyer doesn’t know these things. The debt buyer does know that a bankruptcy declaration most likely makes the obligation uncollectable. So, debt butters are highly motivated to make favorable deals in these situations.
Debt Settlement vs. Bankruptcy
The Automatic Stay, asset protection, and debt discharge are the three biggest benefits which are available through bankruptcy, but not through debt settlement.
Section 362 of the Bankruptcy Code immediately stops most creditor adverse actions, such as repossession, lawsuits, foreclosure, and wage garnishment. Usually, the Automatic Stay remains in effect until the judge closes the case.
Furthermore, bankruptcy is a protective covering that shields assets from adverse action. Property exemptions in Illinois include a house, motor vehicle, retirement account, personal property, and government benefits.
Finally, debt settlement negotiations often reduce the amount to be repaid, as outlined above. But bankruptcy discharges (forgives) most unsecured debts, such as credit cards and medical bills. Other kinds of unsecured debts, such as student loans and back taxes, are dischargeable in some situations.
Connect With a Dedicated 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. Virtual, home, and after-hours visits are available.
