What is the Best Way to Get Out of Debt Without Bankruptcy?
It is a little known fact that most creditors would rather settle with you than have you file bankruptcy. Indeed, many creditors who fear you may be on the verge of bankruptcy have been known to settle for a fraction of the principal balance. This is because the alternative, you filing bankruptcy, would leave them with nothing. Consequently, creditors are often willing to negotiate settlement agreements to recover some of their loss. Of course, because creditors are still losing out, they don’t like to advertise the fact that they are willing to negotiate. Moreover, many creditors will make it extremely difficult (both procedurally and psychologically) for an individual without representation to pursue this route.
Despite the willingness of creditors to settle delinquent accounts, bankruptcy has become increasingly popular in recent years. In fact, roughly a million people filed Chapter 7 bankruptcy last year. The surge in popularity is due in large part because bankruptcy is a powerful form of debt relief, giving people a chance to move on with their life and start anew. However, it is a mistake to assume that bankruptcy is the only way to achieve this financial renewal. Like bankruptcy, debt settlement also allows you to eliminate credit card debt legally and with less adverse consequences.
How Debt Settlement Compares to Bankruptcy
Even bankruptcy lawyers will tell you that bankruptcy should be your last resort and that you should not file unless you have exhausted all your other options. This is because bankruptcy carries serious adverse consequences, including long term effects on your credit rating and financial future. In addition, your credit score will recover faster if you opt for debt settlement as opposed to bankruptcy.
Both debt settlement and bankruptcy involve forgiveness of debt. However, debt settlement may allow you to keep your house if that is the best option, whereas bankruptcy (Chapter 7) may not. Moreover, debt is typically settled with creditors for a fraction of the balance claimed by the creditor.
In order to file for Chapter 7 bankruptcy, you have to pass a so-called “means” test, which generally means your average monthly income over the past six months is not more than the median income in your state. Many people find that regardless of how broke they are in actuality, they do not qualify for bankruptcy because, according to the State, they make too much money. This is due to the fact that your monthly income, for purposes of determining whether you qualify, includes not just your regular paycheck, but also any overtime pay and bonuses, returns on investments, rental income, child support and spousal support you have received. Any disposable income, no matter how insignificant, indicates that you’re financially able to pay down your debts, and weighs heavily against you if you’re trying to qualify for Chapter 7 bankruptcy.
Qualifying for debt settlement, however, is usually much easier. If you are in debt and have a means of income, our attorneys can usually develop a debt settlement program just for you that will get you out of debt quicker and for much less money than the alternatives.
This list is not meant to be an exhaustive list of things to consider, but rather a starting point in the information-gathering process. If you would like to receive more information on the different ways you can get out of debt, contact the attorneys at McCarthy Law today to set up a free consultation. Because we sincerely believe in helping people get the debt relief they need, setting up an appointment for a consultation places no obligation on you to engage our services.
Kevin Fallon McCarthy
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