[COLUMN] Bankruptcy is most effective & least costly way of getting rid of debt 

PAY debt off completely

There are, of course, different ways of getting rid of debt. The most obvious is just pay it off. Let’s say you owe $50,000 of credit cards. It’s costing you $1,500 a month of minimum payments to keep them current, or $18,000 a year, every year. Obviously, the simplest way is to produce $50,000 from somewhere and just pay them off completely. But where will you get $50,000? Can you join go fund me and tell everyone to donate $1 each so that you can raise $50,000 to pay off your credit cards? I don’t think so.

Can you ask your rich uncle to give you $50,000? I don’t think so. Can you sell your two fully paid cars to raise $50,000? Even a 2013 M-Benz 300 probably will only sell for $10,000. So no, cars have no real value. Maybe you can win the lottery? Fat chance. You have one chance in 300 million. You have a better chance of getting struck by lightning or eaten by a shark than winning the lottery. Therefore, you can’t just get $50,000 from somewhere and use that to pay off your credit cards, right? That’s pure fantasy.

Debt negotiation & settlement

Another way is to call that number on the TV that says that they can negotiate your credit cards down and work out some payment plan. Let’s say they negotiate it down by half to $25,000. You still have to pay $25,000, right? And, you find out that you pay the business that does the negotiation the $25,000 whether outright or monthly depending on whatever circumstances. Your payments do not go straight to the creditor. It goes to the guy on TV who has what? He has to pay his overhead like his TV ads that cost a fortune.

What happens when the owner of the business decides to use the money you send for something else which happens once in a while in this unregulated industry? The business owner runs away with all of their clients’ money meant for credit cards payments. The FBI goes after the business owner who is now in hiding in the Mediterranean spending your $25,000 that was meant to pay off your credit cards. Think about it. The guy has 1,000 clients all paying him $500 a month, that’s $500,000 a month. Why doesn’t he just collect the $500,000 a month for a year, not pay any of the credit cards owed by his clients, and run away with $6 million in his pocket? The temptation is too big! With that kind of money, he can change his face, change his fingerprints, and maybe even change his DNA. He can become taller, and fatter and change his hair color to strawberry blonde, and he now is Trump’s clone. Want to give your money to Trump’s clone? I doubt that’s a good idea.

This reminds me of the prospective client who after reading a website on the internet sent $5,000 to the alleged landlord owner of the house he wanted to rent. The house was here in LA, while the landlord lived on the moon. The gullible client wired the $5,000 to the alleged owner’s bank, then went to the house to move into it. He told me the address was real, and there was really a house at the address. I said, ”Really? No kidding.” The alleged owner he sent the $5,000 didn’t own the house at the address. Of course, he didn’t own the house he was renting out. He said the website was real. I said sure. So what do you want me to do? I’m a lawyer, not a psychiatrist. “A fool and his money soon part.”

Further, not all of your creditors will agree to settle or to give you an extended time to pay your default. So, a couple of them will start suing you. Pretty soon, you’ll have lawsuits and levies on your bank accounts, and wage garnishments, despite having some kind of negotiated payment plan because this alternative is done by negotiation, and as with all negotiations, the other party can just walk off and not agree to reduce your debt or give you a payment plan. They can decide to just sue you to collect what you owe them. So you can see yourself paying $500 a month to the Trump clone, but still being sued by a couple of creditors who won’t agree to your plan because they are not legally required to agree to it. They have legal enforcement remedies available to them, so why should they work with you and get only less than what you owe them over an extended period of time?

Do nothing and act like an ostrich

Yet another way is just to do nothing and hide your head underground, just like an ostrich. Just pretend you don’t have a debt problem. Change your phone number and hope your credit card masters forget about you. Don’t be surprised when you get a summons and complaint about collection, or your payroll department tells you that there is a garnishment for 25% of your salary until your $50,000 is fully paid. This doesn’t seem to be a very effective way of dealing with debt. You can forget about your creditors, but your creditors, unfortunately, cannot forget about you. Your creditors actually have you by your “cajones” as they say down South.

File Chapter 7 and start fresh without debt

Here comes an alternative that is the most effective, simplest and cost-effective way of getting rid of the $50,000 credit cards. Go see a bankruptcy lawyer and ask if you qualify for Chapter 7 bankruptcy.

If you qualify, your Chapter 7 petition will wipe out the $50,000 without any repayment from you. Zero payment. Start fresh without debt and become productive again like the day you were born. Keep everything you own, including your house, everything in it, your retirement accounts not exceeding $1 million (now it’s a little more than $1 million), your cars, etc., assuming you qualify for all the applicable exemptions. Your cost is just the reasonable attorney fees and court filing fees, credit counseling, and more.

Don’t worry about your credit score. It will go up pretty fast after bankruptcy. You will be able to buy a car on credit as soon as you get discharged. You have to bring the discharge order to the dealer. Within a few months, you will get new credit cards sent to you. Within two or three years, you will be able to buy a house. Soon enough, your credit score will be perfect again. There will be no record of your Chapter 7, 10 years from date of filing. Your credit score will be over 700, year 6. Before year 6, your credit score is going up fast depending on your timely payments of your house or car loans and new credit.

Life is great after Chapter 7, I promise you. That’s why it’s called the fresh start law. Become a productive person again and start saving money again every month. Instead of paying $1,500 a month for $50,000 of credit cards, save that at the rate of $18,000 a year. In three years you will have almost $60,000 saves up in cash, instead of owing the same $50,000 in credit cards! Open your eyes and live a very productive life again.

File Chapter 13 and pay less than the $50K

If you have non-exempt assets that will make you lose valuable assets in Chapter 7, you can file Chapter 13 instead. Let your lawyer analyze your financial situation in detail. Sometimes, it’s not a good idea to do Chapter 7 for certain reasons. If your homestead exemption surpasses its limit by $10,000 for example, just pay $200 a month for 60 months under Chapter 13. You pay the Chapter 13 trustee the monthly $200, not some company on TV. The trustee is an officer of the court and will not run away with your money. This is 100% guaranteed by law. The trustee receives your $200 a month and distributes that equally among all your creditors. Each creditor gets 20% of what you owe them. After 60 monthly payments, the court discharges the $50K and you owe zero.

You get to keep everything you own. This is called a financial reorganization under Chapter 13. The court protects your house and other assets while you are in Chapter 13 from lawsuits, collections, levies, garnishments and other legal enforcement actions to collect debt. In other words, you have peace of mind and the protection of the court from all creditors including the IRS.

If you need debt relief, please set an appointment to see me. I will analyze your case personally.

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Disclaimer: None of the foregoing is considered legal advice for anyone. There is absolutely no attorney-client relationship established by reading this article.

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Lawrence Bautista Yang specializes in Bankruptcy, Business, Real Estate and Civil Litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.

                (Advertising Supplement)


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