IF YOU’VE been trying to figure out a way to get out of debt without declaring bankruptcy, perhaps the idea of simply negotiating a settlement with creditors has crossed your mind. Maybe you’re thinking that there’s a way to reduce your expenses, increase your income and use some of the money you’ve saved up to accomplish this. Is this really the smart thing to do if bankruptcy can be avoided? Well, let me share this story.
Recently, a gentleman came to my office who tried to do exactly the above. He works as a nurse and makes pretty decent income. He had about $20,000 in a savings account and was about $30,000 in debt, all credit cards. Most of his accounts were already in collections so a few creditors have already filed a lawsuit. Not wanting to file bankruptcy, he contacted a few of his creditors and started paying off some of the debts via reduced settlement. Since most of his accounts were already seriously delinquent, some of the creditors were willing to accept less than the full amount owed as long as he was paying in cash. If he were to file bankruptcy, these creditors would get nothing so they thought it was in their best interests to take what they were offered.
The problem, however, was that one big creditor that was owed about $16,000 refused to settle and immediately filed a lawsuit instead of negotiating. After 30 days, the creditor obtained a default judgment and got a court order to garnish wages. This prompted an immediate consultation with my office and this gentleman decided that the only way to get out of this situation was to file bankruptcy in order to protect his income. At this point, however, he had already spent more than half of the $20,000 in savings in paying off some of the creditors he negotiated with. This is money he could have saved (more than $10,000) had he consulted with a bankruptcy attorney first instead of doing debt settlement with creditors right away without knowing what his options were.
The point I’m making is this: If you try to pay off your debts via debt settlement, all it takes is one or two big creditors who refuse to settle to undermine your entire effort to repay creditors and avoid bankruptcy. This means that if you can’t get all your creditors to agree on a compromise to accept less from you than what you owe, you may be wasting your time and money in an effort to avoid filing bankruptcy. This is very common and happens every single day to a lot of people. Unfortunately, a lot of people are misled by debt settlement companies that they hire. Because these debt settlement companies are NOT attorneys, they cannot even give you legal advice when a lawsuit is in fact filed by a creditor who refuses to accept a settlement. Thus, be very careful when hiring a debt settlement company who is every eager to sign you up as a client. Make sure you understand what you are getting into or you may end up regretting your decision.
If you are interested in paying as much as you can to creditors (as opposed to filing a total bankruptcy to just wipe out your debts), consider filing a Chapter 13 instead of doing debt settlement. With Chapter 13, creditors have no choice but to accept your proposed repayment plan once the Court approves it. Thus, you will not have the same problem as I described above if you were just simply trying to get unanimous cooperation from your creditors through debt settlement.
If you need help in understanding the advantages and disadvantages of both debt settlement and bankruptcy, we are here to help. To schedule a free office consultation, call us Toll-Free at 1-866-477-7772. We have offices in Glendale, Cerritos and West Covina.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 4,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.
( Published on September 9, 2009 in Asian Journal Los Angeles p. B2 )
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