The Four Options for Getting Out of Debt
When I meet with new bankruptcy clients for the first time, we review all of their options with respect to handling their debts. The reason they’ve contacted a bankruptcy lawyer is because they aren’t satisfied with their first option. So exactly what is that first option?
Option Number One: Make Payment Arrangements With Each Creditor.
Sometimes this works and sometimes it simply doesn’t. Again, you make the call. I will say however that the Do-It-Yourself option should not consist of selling assets and draining retirement plans. Why? Because your 401k is there for a reason, and it’s not to pay off credit card debts. Moreover, even if you are sued by a creditor, they won’t be able to access (garnish) your retirement accounts anyway. So why in the world would you ever liquidate your savings to pay off creditors? But getting back to this option. Sometimes, indeed, the creditors will work with you on reducing interest rates for a month or two.
Option 2: Debt Counseling.
This goes by a bunch of difference names: debt counseling, debt consolidation, etc. There are non-profit credit counseling agencies throughout the country who assist people with credit card problems. For folks in Western Pennsylvania, you should contact Advantage Credit Counseling, whose office is located on the South Side of Pittsburgh. Their website is at http://www.advantageccs.org/ and their phone number is 1-866-699-2227. They won’t be able to help you with auto repossessions or student loans or other unsecured debts such as medical bills. Their focus is on credit card repayment plans. But contact them and they might be able to help.
Option 3: Debt Settlement.
Well, this is the one option that you shouldn’t follow. It simply doesn’t make sense to go to one of the national “debt settlement” companies. Why? Because they will set you up on a payment plan for 3 or 4 years. Let’s say that your payment plan is $550 a month. Well, after one year, you’ve paid them $6,600 and they still haven’t “settled” any debts. That’s because for the first year (approximately) all of the money you’ve paid them is for their fees. After that, they will start saving money to settle actual credit accounts. And your creditors won’t be happy during this time, not receiving any payments. And having a debt settlement plan won’t stop the collections phone calls or lawsuits. Your actual contract with a debt settlement company will state in writing that in the event you get sued, they do not represent you! Lastly, you may be stuck with an IRS tax bill at the end of your debt settlements. Why? Because anytime a creditor settles a debt for more than $600, they are required by the IRS to issue a 1099-C tax form. Thus, you get stuck with the bill. If you’re still curious, then at least google “debt settlement scams” and read up on the problems that others just like you have had to confront.
Option 4: Bankruptcy.
At all of my initial conferences with new clients, I like to specifically go over their credit card payments and see how much a bankruptcy filing will save them. Usually, it’s substantial savings. A Chapter 7 filing will wipe out all credit card, utility, repossession and medical bills. So that can be significant. If clients don’t qualify for Chapter 7, then a Chapter 13 filing may still save them a significant amount on monthly payments.
This is the whole point of the initial attorney consultation. Review your options and see how each option might be able to help your circumstances.
I encourage you to check out this very nifty How To Get Out of Debt calculator from my friend, Steve Rhode, at http://getoutofdebt.org/get-debt-calculator/
Finally if you have any questions or comments, please add them below.