by Hale Andrew Antico, Esq.

There are many options on how to deal with a debt problem.   A bankruptcy is not always the best option.  There are other solutions which may work, as well.  I'd like to just take a few minutes to go over the different options someone in your position -- with a bunch of debts that's not going away on its own -- might want to consider.

First, you can... do nothing.  Yes, that's right.  Do nothing!   Hey, it's an option.  Not necessarily a wise one, but still.  When you're brainstorming, consider all avenues.  What are the up-sides of doing nothing?  Well, you don't have to spend any money.  Just let the debts go unpaid.  Of course, There are serious consequences to doing nothing...including a judgment and wage garnishmentthere are serious consequences to doing nothing, the biggest of which is, you're not solving your debt problem and likely a sitting duck for a creditor to sue you, get a judgment and then start garnishing your wages , liening your property, etc.  And a judgment is good for 10 years, and it can be renewed every ten years, growing with interest and penalties along the way.  Even if you "have nothing" now, chances are at some point you will have a job, want to own a house or other property.  And the judgment will be sitting out there, waiting to be dealt with.  And more costly than ever.

Second, you can negotiate your debts.  Yes, you can buy your debt from the creditor and settle with them for 75 cents on the dollar or even better.  That's the good news.  You can save money on your debts, and be done with it.  Of course, this has downsides:  your credit card companies will want this money to be paid in big lump sums.  Most people who owe $5,000 to Capital One don't have $3,000 laying around to settle with them.  And that's just that one credit card.  What about the money owed to Chase, Providian, Fleet and B of A?  No, for this solution to be viable, it has to contemplate all of your debt, all of your accounts.  Any plan to get out of debt that is less than complete is an unacceptable idea.

Third, you can try debt consolidation  and those credit card counseling services.  The good news about this approach is that you might be able to pay your debt back and avoid a bankruptcy.   The downfalls about this approaach are many.  First, some debt counselors are fly-by-night , here today gone tomorrow types.  Second, many of them are working with or for "The credit card companies want you to make minimum payments... forever"the credit card companies themselves.  Next, the payment amount they come up with is based on the credit card companies' demands, not based on what you can do and stick with.  And, most importantly, you can still be sued in credit counseling and get stuck with a judgment.   Bottom line:  your credit still takes a hit from the debt consolidation company, you're going to bust your hump for four or five years on a plan you probably can't finish, then start rebuilding your credit at that time, all the while being vulnerable to a lawsuit and judgment.  And that's assuming you find a reputable company! Next, will minimum payments solve your debt problem?  Hardly.  The credit card companies want you to pay minimum payments forever.  You are not getting yourself out of debt, merely maintaining your debt.  If you are actually reducing your balance, a  minimum payment calculator shows that you are paying 50% or more for the item you got a great "deal" on by using the card.  Minimum payments don't work, and if they do, you're seriously overpaying.

 

Note

If you're going to seriously consider debt consolidation, consider an option may be better which allows you protection from lawsuits, a set number of payments, and no chance of the payments going to waste.

Finally, bankruptcy may be a solution to your debt problems.  The good parts:  you are protected from being sued the day you file your papers.  Also, a BK is a complete and comprehensive solution to all of your debt problems and debts.  You get closure in less than 6 months and can start rebuilding your credit much sooner.  However, a bankruptcy also has drawbacks.  Most famously, it's a negative mark on your credit report, just as a debt consolidation is.  This does not mean you won't get credit again... actually many creditors are willing to help you rebuild your credit , for a higher interest rate. 

How do you know which option is best for you, or whether a bankruptcy can help you in your situation?  Regardless of whether you are dealing with car repossessions, wage garnishments, judgments or just a lot of high credit card debt, only an attorney can give you legal advice about the feasability of a bankruptcy to your unique circumstances, as well as help you get a fresh start as you move ahead to a debt-free tomorrow.

 

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Don't Delay

| 15.05.2006 | Print |