Tag Archives: Debt consolidation

Debt Settlement Blogger is Busted for Declaring Bankruptcy Dumbest

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In an effort to sell debt settlement, a blogger for the industry recently wrote on the “How Life Works” website an article entitled The 5 Dumbest Things You Can Do if You Have too Much Debt. In this case, the article should be exposed for what it is, an advertisement blog to sell debt settlement for the hosting company. Although one can poke holes in all five assertions made, the debt settlement blogger is busted for declaring bankruptcy dumbest.

Whereas I might partially agree with the assertions made by the blogger on debt in general, his or her comments on bankruptcy in particular were out of character and misinformed. In the article, here is the actual list of the five strategies the blogger says you may want to avoid, and I have made comments where I agree and disagree with each:

  1. Paying on the minimum on your debt, as this will result in the amount you owe actually growing, and your problems will only become worse.

    Comment: What the blogger is most likely talking about here is making minimum payments on revolving credit card accounts. The statement about such payments is true, unless you are paying on an account with no interest.

  2. Relying on friends and family, as this can damage a relationship with the most important people in your life.

    Comment: Where it is true financial relationships can strain family ties and relationships, financially relying on family and friends can be one of the greatest relationship builders known. We all start out very financially dependent on our parents, but few of us rely on our friends. It may not be wise to borrow money from family or friends when you are independent, especially if you are overextended, but if it is obvious your financial situation is not for an extended time, and you have the means to pay the money back, it may not be the dumbest thing either.

  3. Unscrupulous credit counselors that demand cash upfront or high fees for help they promise, but don’t deliver.

    Comment: Not all credit counselors are unscrupulous. The idea of learning how to manage a budget is not only a good idea, but it is required through certified counselors by federal bankruptcy laws before you can file bankruptcy. You can never know whether or not any vendor will deliver what they say they will without researching their credibility, and even then, you may learn differently the hard way.

  4. Using new, high-interest loans to pay off lower interest rate loans. While it may be easier to just have one payment, it will actually increase the amount you have to pay back.

    Comment: Consolidating your loans will not necessarily increase the amount you have to pay back. It can, but if you get one overall lower interest rate than the average current rates paid, you can pay back less for the total principal borrowed. Under certain circumstances, consolidating loans is a time honored and viable way to deal with debt.

  5. Declaring bankruptcy–this can have permanent and severe consequences on your financial future. Avoid it if you can, especially when debt settlement may work for you.

    Comment: This is probably the most ludicrous statement the blogger makes. You cannot avoid bankruptcy if it comes. It is what it is. Bankruptcy does not have permanent consequences. As a matter of fact, filing for bankruptcy protection is the only sure way of freshly starting over financially. Yes, you may have to rebuild your credit, but if you have not been able to pay your bills, your credit already needs rebuilding.

Settling debt only temporarily solves financial problems. You can say the same for filing bankruptcy. Learning to manage and live on a budget while maintaining a livable income are the only things you can do to really solve debt issues. Filing for bankruptcy protection is the only option that gives you the fresh new financial start you need to learn financial management.

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Federal Student Loans and Options for Paying

President Barack Obama walks to stage to discu...

President Barack Obama walks to stage to discuss student loans in the Diplomatic Reception Room. (Photo credit: Wikipedia)

Student loans, both private and government types, cannot normally be discharged in any type of bankruptcy you might file. Unless you can prove you are a hardship case that might never be able to pay the loans, student loans will survive a bankruptcy. The burden of proof in a bankruptcy is on you and often very hard to prove.

Federal laws governing student loans are not without compassionate options. Federal laws provide options for paying back federal student loans when you do not have the financial ability to do so. These laws are designed to allow those of you, who are temporarily without the ability to pay, to pay what you can afford until you are making the kind of money to support the debt.

As an example, a blogger who owed federal student loans came on a bankruptcy forum website recently and blogged, “I know student loans can’t be discharged unless there’s a really good reason, but I have to ask. I was just wondering if the fact I owe $63K and only have an entry level BA degree in psychology [makes a difference]? I just got a job making $12/hr after 90 days probation is up. My husband is an immigrant who is in the unskilled workforce and we have 2 kids. I’m healthy & he’s healthy. There really no hardship other than an inability to make enough to realistically pay these loans off in a timely manner.”

Fortunately, there is hope to pay federal student loans for people like the one in this example. Here are some options she and others like her might consider:

  • Direct Consolidation Loan. You might first consider consolidating your federal student loans into a Direct Consolidation Loan. This solitary loan may lower you payments down from multiple loan payments in order for you to afford the payment. This is a federal government loan consolidation available through the U.S. Department of Education.

  • Income Based Repayment (IBR). Once you have consolidated your loans and find you still cannot afford the payments, you can then apply for an IBR plan. An IBR is a repayment plan for the major types of federal student loans that caps your required monthly payment at an amount intended to be affordable based on your income and family size. This type of loan adjustment is for the lowest income producers and may result in $0 payments to the plan if you are at or below the poverty level in your state. There are multiple advantages and disadvantages for this type of repayment plan.

  • Income Contingent Repayment (ICR). An ICR gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse’s income if you’re married), family size, and the total amount of your Direct Loans. The plan provides for a gradual increase in payments and is primarily for ex-students who have the ability to pay more. If you have paid on the plan for 25 years, what has not been paid off will be forgiven. You may still have a tax burden on the deficiency of what was forgiven.

Before you obtain a student loan or file a bankruptcy, you should know your options!

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What is debt consolidation?

Is debt consolidation a good alternative to filing bankruptcy?

With the various economic issues facing many Americans today—such as the increase in credit card debt, the decrease in the value of homes, and the surge in the unemployment rate—there are many companies offering debt consolidation services.  You likely have seen or heard various advertisements for this service on television, radio, and in print media, which tout the benefits provided by debt consolidation.  If you have more debt than you can afford to pay, you may be wondering what debt consolidation is exactly and if debt consolidation is a viable alternative for you to filing bankruptcy.

Debt consolidation is a process that allows you to take more than one existing debt on which you currently make payments and combine them into a single monthly payment.  This is done by taking out a loan to pay off all the other debts, allowing you to then make a single monthly payment on this new loan.

In theory, debt consolidation can be a good option for you if it allows you to turn your existing unaffordable debt payments into a monthly amount you can afford to pay.  However, there are other factors you should consider before you enter into a debt consolidation.

Interest Rate

Like any other loan, the lower the interest rate on a debt consolidation loan the better from your perspective.  Depending on the type of loan you obtain to consolidate your debt, it will affect the interest rate you are charged on that loan.  If you are able to obtain a secured loan, which is a loan that is attached to an asset you already own, you will generally get a much lower interest rate than if you take out an unsecured loan.  A common example of a secured loan is a home equity loan, because the loan is tied to equity you have in your house.  The downside of a home equity loan is that if you do not make the payments, the lender could foreclose on your home, so this possibility should be considered in making the decision.

Length of Loan

How long is the loan, or put another way, how many payments will you have to make to complete the debt consolidation loan?  While extending the loan over a longer length of time can seem like a good idea, because it will reduce your monthly payment more than will a shorter loan, the longer-term long can cost you more money, because you will continue to pay interest each month on the unpaid loan balance.

Additional fees

If you go through a debt consolidation company to arrange the consolidation loan, be extremely careful in selecting a reputable organization.  Given the large number of people who are looking for debt relief, who do not have experience in managing their debt, and who frankly are frightened of the debt situation in which they find themselves, there are a number of companies who are looking to take advantage of the situation.  These companies often charge expensive fees to arrange the debt consolidation loans, which can eliminate a majority of the savings you might otherwise earn through consolidation.

However, debt consolidation is still a legitimate option that has helped thousands of people reduce the monthly debt burden they face.  So long as you exercise care in evaluating the pitfalls noted above when considering a debt consolidation loan, it can be a preferable option to bankruptcy.  Declaring bankruptcy can seem like a good idea because it can give you a fresh start by potentially eliminating your debt, whereas with debt consolidation you will have to actually pay the debt you owe.  But bankruptcy likewise has negative consequences that can follow you for years.  Because of the negative consequences of a bankruptcy, you should at a minimum determine what the best monthly payment amount you can arrange is through debt consolidation, to see if that amount is something you can afford to pay.

In the end, it is usually wise to see advice from a bankruptcy attorney to understand the option that is best for your situation.

How can I obtain help from a bankruptcy attorney?

If you complete the short evaluation form below, a bankruptcy attorney can perform an initial evaluation of your situation to help you determine if debt consolidation, bankruptcy, or another option is the best approach for you.  This evaluation is free of charge and completely confidential.  While this review does not obligate you to anything further, it will give you the opportunity to discuss your situation with a trained professional and hire that attorney to help you through the entire process.  So please take the first step today in getting the help you need to resolve your debt.

Government Employee Fears Losing Security Clearance Over Bankruptcy

This personal bankruptcy story was posted on the internet in November of 2008 as a comment in a discussion on bankruptcy: “…My wife and I have gotten way over our head in credit debit. That, combined with a couple of vehicle loans that I can’t get out from under is quickly turning my debt to income ratio upside down. I have a decent job, but all the monthly payments on my credit and loans is dragging me under. I have automatic withdrawals for my house note, plus the vehicle loans, so I have not missed any as of yet, but I am slowly losing ground on the credit payments. I see no way out. I tried debt consolidation loans, but was turned down by the two banks that I have done business with for years because of my outstanding credit debt…I wiped out an emergency money market account just trying to keep my head above water, but as of now I am at a loss. I can’t look at bankruptcy because of the potential of losing my government security clearance, which in essence would mean I would ultimately lose my job. Everything certainly seems hopeless at this point.”

The debtor in this personal bankruptcy illustration is a government employee who fears losing his security clearance and job if he files for bankruptcy, so, he refuses to look into bankruptcy protection as an option. What he may not realize is that the Office of Personnel Management (OPM) might look at his refusal to deal with his financial problems as a more serious threat than if he were to go ahead and legally deal with his difficulties. To the OPM, according to their own documents and records, cause of debt is generally more important than the amount of debt, because it reveals more about a person’s reliability, trustworthiness, and judgment. If debt is caused by reckless behavior, then the problem becomes more magnified. Likewise, if the employee is handling debt in a reasonable manner like bankruptcy protection or debt consolidation, the importance of the problem is significantly reduced. The words, “bankruptcy” and “credit counseling” do not appear anywhere in the Adjudicative Guidelines. Nevertheless, significant debt is a security concern, and not dealing with your debt or ignoring such matters is a sure fire way to be investigated by the OPM. Federal Investigative Notice No. 06-07 says the OPM does not automatically expand investigations for financial issues unless a credit report reflects current aggregate delinquent debt totaling $3,500, there has been a Bankruptcy within the past 2 years, or there has been a bankruptcy within the past 3 to 5 years with evidence of current credit problems.

Having said all of this, our debtor in the illustration might need to face his financial problems head on and legally deal with them. If that means filing for bankruptcy protection in order to straighten out his finances, the OPM might be more understanding if the debtor is trying to alleviate a bad financial situation he has inadvertently gotten himself into rather than finding out later how bad of debt the employ got himself into by ignoring a serious problem. Filing for bankruptcy protection is your Constitutional right, and it is a legal proceeding that is designed to protect both creditor and debtor and to allow the honest person or business to work their way out of a bad financial situation, or in some cases, to completely start fresh. Assuming the debtor in our illustration is honest, the government management team who evaluates the employee has a responsibility to uphold the Constitution, and they are likely to give every consideration to an honest effort by someone who is exercising their Constitutional right to handle their debt.

Many of you are like the debtor in our illustration who fears the unknown. You wait way too long to face your problems and reasonably deal with your financial situation because of what you fear. To help alleviate fear of the unknown about bankruptcy, a good understanding of bankruptcy laws could help you determine reasonable options. Bankruptcy laws are complicated, and common sense indicates you will need a bankruptcy lawyer in order to properly understand how these complex laws may apply in your situation. If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan area of Springfield, Massachusetts, contact us today. We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.

Debt Settlement and Bankruptcy

Two of the largest contributing factors for going bankrupt in this economy are foreclosures and credit card debt. With our economy going south, it should not be a surprise to homeowners that the value of their homes are plummeting in many areas of the country. Being upside down on your house is probably the rule more than it is the exception today. Combine that fact with a loss of income, and you have a recipe for a foreclosure of catastrophic proportions.

Credit card debt is another factor in going bankrupt. When the economy turns down like it has and people lose their income or a portion of it, they usually respond by using their credit cards as a temporary measure to maintain their current lifestyle. Their thinking is that things will turn around quicker than they do, but instead, they often bury themselves further in credit card debt. When they maxed out their credit cards this past April before the new credit laws went into effect, the credit card companies raised all their interest rates to the maximum, most over 24%APR. The new laws require the credit companies to give 45 days notice before they raise them now. With interest rates high, the added stress on already stressed credit card accounts makes it almost impossible for many credit card holders to pay off their debts. As a result, many are driven to bankruptcy protection.

This personal bankruptcy story was posted on the internet in December of 2010 as comments in a bankruptcy discussion: “…We owe about $120K un-secured [debt], although about $30K of that is IRS. One cc collection company has agreed to $2,200 on a $22K debt, another we have barely started talking to and already they are agreeing to $19K on $38K debt. Another cc is only $6K but has been turned over to attorney and attorney has filed court case. We also have two line of credit accounts that total $25K that we have not paid for five months…We are about $50K underwater on our home (did modification so now affordable and want to keep, have $45K homestead exemption in our state).
I know that it is what you owe vs assets but if we settle this first one for $2K and try to keep working with the others, each time we settle one, we will owe less. The line of credit accounts probably won’t even consider a settlement for months so I am concerned that by the time they are ready to settle we will have have settled the others. We have about $7K to work with right now to pay cc settlements although we will be getting another $10K in another month through a court settlement…Another concern of course is that if we can’t get the big $38K one to settle, then we do not want to throw our money away settling with the others.”

One thing is for certain, settling with debtors takes time and expertise. Creditors rarely settle with debtors, but they will settle with lawyers more often because lawyers can negotiate from strength. The debtors know if you have gone far enough to retain a lawyer, they could possibly be facing a bankruptcy in which they stand to lose it all. Likewise, once a creditor files for a judgment in court, negotiating may be very close to being over, leaving you with little option but to file for protection.

Since there has already been a lawsuit filed, the debtor in our illustration is most likely grasping for straws in the negotiation process and may end up filing for protection.

Bankruptcy laws can be complicated, and common sense indicates you will probably need a bankruptcy lawyer in order to properly understand how these complex laws may apply in your situation. If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan area of Pittsburgh, Pennsylvania, contact us today. We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.

When Do You Ethically Start Negotiating Credit Card Debt?

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According to the National Bankruptcy Research Center and the American Bankruptcy Institute, personal bankruptcies were up to 1.53 million, a 9 % increase from 2009. This is the highest level since the 2005 laws were passed that were suppose to make it harder to file for bankruptcy. The financial crisis during this recession is mostly responsible for producing the results, but other factors like rising unemployment, credit card abuse, and upside down mortgages have greatly contributed. What is unusual about this particular recession, many households which have been meeting their financial obligation for years, are having to file for the first time. That means some of these new filers are coming from the middle and upper class ranks. More educated, middle class, and Professionals are filing for bankruptcy protection than ever before.

Generally speaking, when a household which has been meeting their financial obligations for years loses part or all of its income, the normal response in years past has been to rely on instant credit to tide the family over until they can replace the perceived temporary loss. What is different in this recession, is that with outsourcing moving rampantly through our society, it is much harder to replace the income that has been lost. People from all demographics are finding out that if they do get a job to replace the job they lost, it is usually for less income. As a result, the credit they temporarily extended to themselves to maintain their current living expenses becomes a financial albatross tied around their necks which drags them even deeper in debt. With the mortgage crisis looming at the same time, their high mortgage payments add more weight to their financial woes. In addition, new credit regulations have been too few and too late to alleviate the usury rates credit card issuers have sent debtors just before the regulation changes and when debtors began to be late on their payments. The skyrocketing costs to maintain their credit cards, even using the minimum payments, are exorbitant at best, adding more weight to the already loaded albatross. Most debtor’s responses under these loads is to want to negotiate with their credit card companies first because they have no control over their income and secured mortgages. So, when do you ethically start negotiating with your credit card debt?

In my opinion (not a legal opinion), I think the most sensible time to negotiate with your credit card company is the moment you lose income. This timing, again in my opinion, is probably the most ethical time to try to negotiate with them because you are being up front and honest with your situation. Tell your credit card company what has happened with your income, to place the credit card on hold, and then ask for an extension of time and reduction of interest until you can get your income back. Whatever you do, it is not wise at this time to let your credit card company know about how much current money you have in reserve or any accounts thereof. If your negotiations fail, they will use this information in bill collections. What is important that you should convey to them is that you do not have current income to sustain your credit card payments. Too, if you talk to your credit card companies the moment you lose your job, most of the time, you should still have manageable debt. Some credit companies will see the wisdom in your early negotiations. It will most likely come across as responsible, which should make it easier for you to negotiate. By going in and being up front with them as early as possible, they may come nearer working with you, and if they won’t, you get an early heads up as to what it may be like if things get worse. What you might not want to do and will be tempted to do is pay off your credit debt with other credit cards.

If you have failed in early negotiations, failed to tell your credit card company of your predicament, or used other credit cards to pay your debts, then you may be a candidate for bankruptcy protection. Bankruptcy laws can be complicated, and common sense indicates you will probably need a bankruptcy lawyer in order to properly understand how these complex laws may apply in your situation. If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan area of Honolulu, Hawaii, contact us today. We will help you find a bankruptcy lawyer in your area that will help you with any questions you may have on bankruptcy law.