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The Truth about Debt Negotiations and Debt Settlement.
Though media coverage of debt programs tends to lump them all together, there’s actually a great difference between debt settlement negotiations and the competing systems. The debt settlement plan is often compared, for example, to consumer credit counseling (even though settlement seeks to reduce total debt-load rather than just interest rates) and bankruptcy (though without the crippling effects upon credit reports and FICO scores), but much separates the superficially similar methods.
Essentially, the debt settlement company negotiates upon the debtors’ behalf with creditors to reduce the overall debts in exchange for an agreement upon regular payments to be made. For the debtor, this makes obvious sense – they avoid the stigma and intrusive court-mandated controls of bankruptcy while still lowering, sometimes halving their debt balances. Whereas, for the creditor, they regain trust that the debtor intends to pay back what he can of the loans and not file bankruptcy (in which case, the creditor risks losing all monies owed).
There’s no guarantee, of course – all depends upon the specific debtor, their ability to repay obligations (or liability within lawsuit) based upon surrounding debt-load, past history of debtor and creditor, and the degree to which sudden financial hardships, whether unemployment or injury or divorce or disease or any sort of genuine emergency, have proven a restricted financial capacity. Successful negotiation can dramatically reduce debt balances, but all situations are different. The best suggestion’s to consult with a debt settlement professional to see if the program’s right for you.
Avoid Bankruptcy
There’s a ton of web-site pages available on the internet that promise to provide consumers with the real facts about bankruptcy protection, but almost all of them merely rewrite the documents that appear on government sites or offer thinly veiled advertisements for bargain basement bankruptcy attorneys. With the information presented here, we hope that debtors worried about the need for declaring Chapter 7 or Chapter 13 personal bankruptcy will at least gain a better understanding of what the process actually entails. Obviously, no cursory glance at bankruptcy could take the place of advice from competent professionals who have analyzed your specific financial situation, but this should be a good starting point for debtors nearing their breaking point.
In the simplest definition, the United States bankruptcy code affords protection under federal law for American debtors who can no longer be expected to repay their financial obligations. It’s intended to provide a new beginning for those consumers who have demonstrated an inability to pay back their debts. Under the Chapter 7 program, most unsecured debts (credit cards, generally) will be eliminated although those individuals declaring Chapter 7 must worry about property seizure by the courts. Chapter 13 bankruptcies, on the other hand, enforce a repayment schedule for debtors according to a budget overseen by court appointed trustees.
As you’d imagine, Chapter 7 bankruptcies – the so-called straight bankruptcy protection – are far more desirable even though the debtor does risk all assets (excepting household goods, primary vehicles, and those items necessary for the debtor’s earned income; there are other specific exceptions that vary from state to state) but 2005 legislation has made declaring Chapter 7 far more difficult. Under the current federal guidelines, debtors must subject themselves to something called a “means” test which looks at the debtor’s income as compared to the average income of their home state, and, if the courts find that those filing do not qualify for Chapter 7 bankruptcy protection, they will instead be entered into a Chapter 13 program.
While some debtors with sizable assets they wish to protect do initiate Chapter 13 proceedings of their own accord, it’s obviously less popular for consumers considering that they will still have to pay back to the majority of their debt balances while also suffering the consequences of bankruptcy notations upon their credit report for the next decade – and, alongside, must endure the lowered credit scores and increased scrutiny from credit analysts. The Chapter 13 program does allow debtors to maintain debts not covered under bankruptcy protection, but the severe budgetary restrictions (all of which depend upon Internal Revenue Service strictures) that trustees place upon household finances may force debtors to move, take their children out of schools, or abandon career ambitions and life long passions.
As we have said, there are specific exemptions that each state allows which may undercut some of the more broad federal guidelines. Before any debtor even begins to consider the bankruptcy alternative – and bankruptcy protection is, these days, with debt settlement programs increasingly popular, only one of several options – it is of primary importance that they consult the documents available from their state attorney general to investigate just what they would let themselves in for. With Chapter 7 bankruptcies in particular, the regional distinctions regarding which property may be legally seized by the courts may differ greatly. Many of these sites have not been updated since the new legislation and do not bother to warn debtors of the inherent dangers Chapter 7 bankruptcy now threatens. In past years, filers only had to compile a list of their assets and possessions with an eye to their eventual resale value. Unfortunately, the passage of the 2005 bankruptcy act changed this calculation completely. As the law now states, consumers declaring bankruptcy must figure out the replacement value of their holdings – the difference between picking up a couch or lamp at an estate sale and purchasing one of them at a retail store. In this way, depending upon the whims of the court, families have lost family heirlooms.
The new valuation of household goods is only one part of the 2005 legislation that older websites fail to mention. Statutes and regulations are continually argued and could change at any moment – debtors must recognize the limitations of anything the read upon the internet. For another example, anyone seeking to declare bankruptcy must now complete a debt management course that the debtor must personally fund. Even beyond the loss of time for folks often juggling two different jobs in order to make ends meet, the cost of those courses certified by the government could be more than many desperate debtors may bear. It’s hard enough for most folks filing bankruptcy to find the hours available to meet with their lawyers and spend a day waiting for the courts to look at their case, but this new requirement piles stress upon stress.
Both types of bankruptcy will eliminate all unsecured debt, stop foreclosures, repossessions, wage garnishments, utility shut offs and debt collections. Neither form of bankruptcy eliminates child support, alimony, fines, taxes or student loans. Both types of bankruptcy are equally damaging to your credit, but if you are faced with having to file bankruptcy your credit right now is the least of your concerns. Hopefully, this helps you understand bankruptcy a little more. In most states you can file yourself, however, I strongly recommend talking with an attorney before making the decision.
I hope that reading the above information was both enjoyable and educational for you. Your learning process should be ongoing--the more you understand about any subject, the more you will be able to share with others.
Debt Settlement
As the U.S. economy hinges more on consumer debt, personal bankruptcy cases are on the rise – almost two million filed in the last year alone. With most consumers experiencing heavy debt loads with bills piling up monthly, it’s understandable why a lot of debtors are seeking protection from their debt. Recent legislation regarding personal bankruptcy has made filing increasingly dangerous. In contrast, a variety of alternatives have cropped up in the past few year – one of which is debt settlement negotiation – making it a success with several types of debtors. Bypassing the protection of bankruptcy and the credit card funded consumer credit counseling programs, the debt settlement industry has swiftly found its niche in a marker that is growing every day. However, being a newer alternative to bankruptcy proceedings, the debt relief industry remains mysterious to the majority of potential clients. Fortunately, we’ve answered some of the frequently asked questions regarding debt settlement.
· Can all my debts be settled through these firms?
Unhappily, debt settlement doesn’t work well for secured debts – loans that are attached to homes or personal vehicles that can be foreclosed or repossessed – and the credit analysts aiding you in settling your debt focus mainly on credit card companies worried that you will be forced to declare bankruptcy.
· Does debt settlement work for student loans?
Student loans don’t seem like they qualify as a secured loan, as it is, it’s not like someone can repossess your degree. However, the government passes legislation years ago stating that student loans could not be eliminated through bankruptcy – even if it was a private loan. Taking this into consideration, lenders enjoy considerable leverage in the process of negotiation and debt settlement professionals cannot help in this area.
· Can all credit accounts be included in the debt settlement process?
When a debtor does not include all credit lines and credit cards in the debt settlement process, the negotiator in charge of the account may face more difficulty in negotiating successfully. Lenders are most likely to concede balance reduction if they know their competitors are having to do the same thing. Alternatively, if the lender things the debtor are the ability to work with any lender, all lenders will think they can demand to be first in line. All unsecured credit cards, even gas station accounts and department store accounts, should be the first items to be consolidated with all other existing debt so the debt settlement professional can have the highest advantage in negotiating.
Debt Help.
Trust your authors, we understand all of the undeniable urges of problem spending within modern American life. Bombarded with commercials and advertisements glamorizing the many new and wonderful products – and all the new and ever more colorful and personalized credit cards with which to buy such things – it can seem impossible not to succumb to temptation and give in to foolish shopping sprees. Much of the current problem with the United States economy, more and more of the leading economists are now explaining, has been the two decades long dependence upon American spending habits to counter our failing manufacturing base and keep the stock market humming along. For this reason, a deregulation of credit card accounts and sudden explosion of credit availability was blithely dismissed and indeed subsumed into the larger culture. Credit card debt, like death or taxes, was simply something we were supposed to accept as an everyday part of life.
Well, with the coming recession, that time is now over. Savings are the mission of the day for every citizen. Only through a disciplined program of personal savings can we help to rebuild our economy and put this country on track for the coming century. First, though, we must deal with all of the many debts – particularly credit card debt – that have accumulated over the past no matter how difficult this may at first appear, especially for those younger debtors who have never known any other sort of existence. Let’s face facts. For American consumers who have come of age since the early 1980s, living paycheck to paycheck has been simply de rigeur and one’s social status can largely be determined by the sort of spending you display. From hipster youth who’ve charged their designer wardrobe and nightclubbing to ever expanding credit card debts or techie suburbanites that feel the need to continually buy the latest Nintendo products or flat screen consoles, debt has become an integral part of the last two generations’ sense of self.
As with every addiction, this sort of thing can seem unfathomably hard to change and make right. Correcting the habits of a lifetime’s never easy, and, believe it or not, the instructions of the AA self-help doctrine may be useful in altering behavior. Accepting that you have a problem with credit card debts, of course, should go without saying. They say the average American now holds thirteen credit cards, and, since you have already read this far, it seems likely that you fall on the larger side of that number. It should be of the greatest importance to leave the cards in the wallet for any purchase no matter how inconvenient resorting to physical money may appear in our new credit based society. After all, remember, the credit card companies were instrumental in transforming our culture into one in which cash purchases – bizarrely, if you think about it – are looked upon as suspicious. No fools these multinational conglomerates, they have even set forth a string of commercials that attempt to portray credit card conveniences as more effective labor saving devices for the retail community than exact change when nothing could be further from the actual truth. Their profits come from convincing the general public to maintain a steady foundation of unsecured debt and pay compound interest for ever more.
Of course, avoiding the credit cards when hectored by time (or even justifying their usage through increasingly extravagant Automatic Teller Machine fees) could be more easier said than done. For this reason, many debtors have simply chosen to leave their cards at home. Many problem consumers have even gone so far as to hide them in hard to reach places – behind difficult cabinets, within pottery, any number of different solutions; it can be thought of as a sort of game; try making a paper mache pinata to be burst open when the debts are finally cleared away – just to avoid the lure of home shopping networks or the irresistible temptations of online purchasing. If, still, this has no real effect upon credit card sales, you may have no other alternative than to give away the cards to friends and family or even cut them up with scissors and burn the remains. While we would hardly recommend such a procedure – out of sight and out of mind should be a decent enough solution – the most important element to successfully eliminating credit card debt remains a halt to debt spending. Well, to be perfectly honest, proper debt relief is really more than just an end to spending. For consumer personal finances to fully be rehabilitated, there also needs to be a sudden cessation of any sort of foolish purchasing, and, to recite another tried and true adage from the self help community, this may require the debtor to distance himself or herself from problem friends and acquaintances. As we have said, there is so much more to life than merely impressing a temporary social scene or trying to keep up with the purchasing power from friends that may just have significantly greater income. For twenty-something debtors absent familial pressures or some specific reason for their burdens, credit card debts spiral out of control almost solely because they wish to maintain a style of living that they simply cannot afford. For that matter, the succession of defaulted mortgages has similarly hit a senior set that buys boats or takes grandiose vacations because they believe that is their entitlement as Americans. It is time, as a country, to go to the mattresses, save as much money as is humanly possible in order to pay down unsecured bills, and – tough as it may seem – rid your life of those people that will not assist and expedite the road back from spending addictions. Just because you’ve attempted to alter your mindset, of course, does not mean everything about your finances will suddenly be bettered. For one thing, after years of spending without regard to need or capacity, it turns out to be very difficult to accurately assess what your real budget should be. Gross annual income, these days of temporary work (even for college educated professionals), could even be somewhat tricky to figure – particularly for those small business owners or commission based salesmen who are reasonably expecting to see everything about our economy fall in the years to come. Similarly, can we genuinely say what our heating bills shall be if the price of gas continues to rise so exponentially high? The most we could ask from interested debtors is merely to sit down and attempt to figure out a worst case scenario for both their monthly outlay for the normal utilities and their predicted earnings, presuming jobs are even maintained, so that they may go to the next step. In both cases, after all, changes can still be made. Consumers can attempt to take out second jobs or ask members of their family to consider part time employment – or, even, if they see the writing on the wall, update their resumes for a recession proof industry. At the same point, while most utilities are beyond our control, there are several obvious cost cutting techniques (sweaters around the house, turning off lights except when expressly necessary) that should not need further explanation. And some so called utilities, like cable television or lawn maintenance services, may be able to be eliminated without undue hardship.
Once you have done the best you can to estimate future earnings for the household and – keeping in mind both the advised reductions of usage and well portended rise of costs – the future expense of utilities for the coming year, the next step is a bit more tricky. For most American consumers, much of our actual costs escape conscious thought. Growing accustomed as we are to utilizing credit cards for every single purchase and ignoring debts until they can no longer be avoided, we have found ourselves in the habit or spending without regard to need or utility or even, and this could be most damaging, memory. For this reason, it is necessary to take notes on all purchases – no matter how seemingly small – for an entire month, and, then and only then, sit down with the entire household to determine the best ways to eliminate some of the less critical spending to better focus cash outlay on the aforementioned credit card debts. Whether shopping for generic brands (almost always indistinguishable from their more high priced equivalents) or buying, depending upon the size of your family or specific needs, items from bulk discount stores, there are any number of seemingly minimal maneuvers that consumers can avail themselves of to lower expenses and funnel that money to their existing credit card debts. Even abandoning the morning coffee and poppy seed muffin on the way to the office, much as you have grown to look forward to that or any similar small pleasure, can save upwards of a thousand dollars a year. With credit card debt elimination as the ultimate motivation, it should not be that hard to tighten your belt for the near future.
There are, of course, debts to be considered besides those of credit cards and other such accounts. Secured financial obligations, those that are attached to some form of physical collateral (or, for the purposes of the American economy, even though the notion may seem counterintuitive, student loans), should also be dealt with, but, perhaps, not with the same sense of immediate danger that credit cards tend to instill. For one thing, secured debts – even those sub prime second mortgages and home equity loans that have effectively destroyed our financial markets – rarely have anything approaching the interest rates offered by the majority of credit cards. For another, at least as used to involve real estate investments, there should be some degree of appreciation seen in exchange for the debt load accumulated. That’s hardly true with automobiles, famously their blue book value drops as soon as they leave the lot, but most Americans, for better or worse, cannot be expected to give up their cars: though, with the price of oil so very high internationally with no end to the raises in sight, many consumers are trading in their vehicles for used cars with better gas mileage and putting those savings straight into their credit car bill repayments. Walking, bicycling, using public transportation or other low cost means of conveyance would be ideal, of course, but we have no such illusions for the nation as a whole.
Credit cards really are the greatest burden draining the life blood from household economies, and those must be the debts that demand prioritization. Even with that said, though, there are still decisions that must be made. When calculating which debts to first tackle, the main question comes in the manner of a choice of strategies – should you try to pay off the lowest debts or the highest interest rates. Much as it may make sense to concentrate on the higher rates (since, obviously, with compound interest adding to the balance totals each day, these debts will be the most difficult to completely eradicate), your authors would instead try to take down the smallest obligations. After all, these smaller debts tend to have not inconsiderable rates themselves, and, when discussing successful debt relief programs with those debtors that have managed to actually rid themselves thoroughly of unsecured baggage, most consumers talk about the mental relief that erasing even a single bill of a few hundred dollars can bring. It’s a long struggle through the morass of consumer debts and so much of successful debt elimination must depend upon philosophical changes of behavior and a new mentality that prizes savings. Anything that can aid and reward such a mind set should be taken very seriously indeed.
While we hope these tips may be of some help to debtors working to improve their financial situation and lower their overall personal debt loads, we also recognize the limitation of discussing household economic activity without any knowledge of the family’s specific annual earnings, debt holdings, and their overall plans for the future. For this reason, much as there are many debt counseling schemes that only seek to mislead their clients for a more than healthy fee (like the Consumer Credit Counseling industry which actively collects money from the credit card companies as well as the debtors they are supposed to be aiding), there are an equal number of debt professionals who would be of great service to debtors that need some experienced guidance to better assess the repayment solutions available. Debt settlement firms, to take one example, often may offer initial consultation for absolutely free while analyzing the potential client’s suitability for the program. To be brief, the debt settlement strategy attempts to negotiate down the total amount owed from each creditor in exchange from a heightened payment plan generally between three and five years. Clearly, this requires a disciplined budgetary plan from the debtors (as well as a leap of faith from the debt settlement company itself), but, with the potential of eliminating credit card balances by as much as fifty percent before the first payment would even be made, it certainly would be worth the time to try.
The reason that the creditors would agree to cut out such a significant chunk of the debtor’s signed obligations should be obvious, as well. Whenever debt elimination is discussed, the elephant in the room is Chapter 7 bankruptcy protection. Now, as most of us know, the legislation of recent years has severely neutered what most consumers could reasonably expect from bankruptcy nowadays. Tax liens, student loans, and court assessed penalties are not even considered within the boundaries of the program (and congress has threatened medical bills and hospital costs may be next to go). High priced and essentially worthless courses for debt management must be passed before debtors can either declare bankruptcy or enjoy the eventual discharge. Bankruptcy attorneys, more important than ever as conflicting state and federal laws complicate the system, continue to raise their own fees – no free initial consultations to be found there. Alteration of the United States Bankruptcy Code has greatly raised the probability of debtors’ property seizure upon court trustee discretion, and unlucky debtors may find their possessions sold by auction to repay creditors without any legal recourse. Furthermore, depending upon income, debtors may not even qualify for Chapter 7 protection no matter the extent of their total unsecured debt balance!
Still and all, for an unlucky few, bankruptcy protection may be the only light at the end of the tunnel of debt elimination. For those consumers who have faced true financial calamity, there may be no other way to rid themselves of a lifetime’s accumulated credit card debts. Honestly, from reading a few paragraphs on the internet, there is just no way of telling what debt solution alternative would make the most sense for you. At the same point, there’s nothing wrong with begging a program of cost cutting and credit card debt elimination at your earliest convenience. Saving is so important these days, and almost nothing should be thought more crucial to eventual household security than erasing credit card debts. This is where we are as a nation and as a conglomeration of personal consumers. Do whatever you can to winnow down those credit card debts, and, over time, we can reform some manner of savings and proper budgeting to ensure our collective economic stability.
The Benefits Of Debt Settlement.
As more and more American suffer from mounting bills and crippling personal debt loads, an increasing number of unhappy borrowers are turning to debt settlement as a solution to their financial problems. Unlike bankruptcies, there’s no threat of possession seizure or court-mandated living budgets and credit records are relatively unaffected. Also, unlike Consumer Credit Counseling programs, successful debt settlement negotiations eliminate a percentage of the borrower’s debts. This article seeks to illustrate the various reasons why settlement programs have become so popular in recent years.
· Some Debts Are Eliminated.
This is obviously the most attractive element for most borrowers who’ve fallen behind in their payments. Essentially, settlement professionals begin a series of negotiations with credit card companies with the hopes that the creditors will knock off some portion of existing balances (generally between forty to sixty percent) in exchange for a strictly mandated repayment schedule (generally between three to five years). This won’t work for all debts. Secured loans tied to vehicles that could be repossessed or mortgages tied to homes that could be foreclosed upon don’t allow the same leverage, of course, and tax liens, alimony debts or penalties assessed from criminal trials clearly cannot be touched.
· Creditors Are Satisfied.
The credit card companies are usually eager to negotiate a reduction of existing balances to make sure they will receive at least a portion of what was owed. After all, if the borrower were to file for bankruptcy and successfully declare Chapter 7 protection, the creditors wouldn’t be able to collect any funds at all. (this is one of the reasons the borrowers should ensure they’re working with qualified professionals who have previously negotiated with all relevant creditors)
· Bankruptcy’s Avoided.
One of the greatest advantages of debt settlement is one can avoid bankruptcy. The elongated procedure and life-long stigma borrowers face by suffering bankruptcy protection can prevent consumers from employment opportunities, security clearances and home ownership. With current legislation, most people filing for bankruptcy are regularly forced into Chapter 13 repayment programs similar to debt settlement (though far harsher considering court-mandated trustees wholly determine an individual or family’s budget and life expenses during the abbreviated repayment schedule). Even for those that successfully qualify for Chapter 7 bankruptcy protection, the new laws may force unlucky borrowers’ possessions to be seized for auction in order to repay creditors.
· Credit Reports Aren’t Ruined.
Upon a successful debt settlement negotiation and repayment program, notes will be sent to the three major credit bureaus that indicate debts have been satisfactorily settled. This isn’t quite the same as complete repayment, of course, but far more acceptable to future credit analysts than a credit report notation of bankruptcy protection, charge-off or Consumer Credit Counseling. For any debtor that hopes to one day restore their credit rating to top scores, debt settlement can be the most beneficial alternative next to a never interrupted series of regularly scheduled payments.
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