Bankruptcy Alternatives
Although most people find that filing for bankruptcy represents the best way to address their financial problems, there are alternatives to filing for bankruptcy. In some cases people are not eligible for bankruptcy or it is not in their best interest to file for bankruptcy. In some cases, bankruptcy is the best and smartest choice when facing dire financial problems. In other cases, an alternative action, such as an informal negotiation and settlement with creditors or making payments through a credit counseling service, may be sufficient. In still other cases, doing nothing may suffice. By offering experienced, professional advice and an honest appraisal and evaluation of you particular case The Law Office of Howard Tagg can help you decide what course is best and help you carry out your decision.
Do Nothing
Surprisingly, in rare cases the best approach for some people deeply in debt is to take no action at all. If you're living simply, with little income and property and look forward to a similar life in the future you may be "judgment proof." This means that anyone who sues you and obtains a court judgment won't be able to collect simply because you don't have anything they can legally take. Remember, except in unusual situations such as a willful failure to pay child support, you cannot be imprisoned for not paying your debts and, in Texas at least, a creditor cannot take away essentials such as basic clothing, ordinary household furnishings, personal effects, food, Social Security, unemployment or public assistance. So, if you don't anticipate having property a creditor could take, bankruptcy may not be necessary. However, you will have to deal with the constant barrage of collection efforts and may never completely clear up your credit.
Negotiation and Settlement
People or businesses confident that their financial troubles are only temporary may benefit from simply negotiating directly with their creditors. For example, when one is facing a foreclosure or is behind on his or her mortgage, a mortgage holder may rewrite the mortgage so that the past due amount is simply added into the total and amortized over the course of the loan. Sometimes a mortgage company might accept a debtor's deed to the property in lieu of foreclosing and reporting the action to a credit agency. Other creditors may agree to stop their collection efforts and/or accept reduced payments if the debtor signs a "forbearance agreement" promising to pay the debt in full over time. Some creditors may also allow a debtor to pay off the debt for a lump sum reduced amount. Even if creditors may be willing to offer settlements for less than what you owe, you should consult an accountant or tax professional to be certain that you will not owe taxes for the amount of debt written off in a settlement. Creditors who settle for less may issue a 1099 tax form at the end of the year, which may be required to be added to your tax return as income. Creditors facing the possibility of a bankruptcy court discharging their claims are oftentimes more amenable to negotiation. We may be able to help you negotiate and settle your debts with creditors.
Credit Counseling Services
A credit counseling service helps debtors negotiate payment arrangements with their creditors. The service attempts to convince unsecured creditors to accept less than the full amount of the debt and to reduce or eliminate interest charges and penalty fees. The service generally collects money from the debtor on a monthly basis and distributes it to the creditors.
Perhaps you may have thought about consumer credit counseling, but this might not be the most viable option for debt relief. Credit counseling is a popular, legal, and ethical alternative to filing bankruptcy. Utilizing this option, a credit counseling service will work with you to develop a payment plan based on your income, and then will work with your creditors to negotiate them to accept these payments to pay off your debts over time. Sometimes these plans can lower or even eliminate interest on unsecured debts. The big problem with these credit counseling plans is that you will still have to pay off all of the debts, which can take up to 5 to 7 years, and you will probably NOT see a benefit to your credit from doing so. Credit counseling will often damage your credit worse than filing for bankruptcy and burdens you much longer.
Some credit counseling agencies are nothing more than scams. You should be aware that some credit counseling agencies are in trouble with the Federal Trade Commission and the Internal Revenue Service for over-promising their clients. Even credit counseling agencies approved by the US Trustee's Office and the Bankruptcy Court in your district may not be helpful, as not all creditors will work with credit counseling agencies. The goal of credit counseling is to help you pay your debts if you are able to do so. This service works best for people with the ability to pay their debts in full, or at least a great portion of the debt owed. If you choose credit counseling as an option to address your debt you must be able to pay the credit counseling payment without getting behind on your regular living expenses such as your house or car payment for credit counseling to be a really viable option.If you do speak to a credit counseling agency, make certain that they look at your overall financial situation, and that they take into consideration whether or not your budget will address your family's ongoing needs in addition to paying the agency and your creditors. Often agencies only look at the debt payment and will pay little or no attention to your actual ability to pay your other living expenses.
What if all of your creditors except 2 or 3 agree to work with the credit counseling agency you choose and the 2 or 3 who won't work with them sue you? Interestingly, mortgage companies and other secured creditors often will not work with credit counseling agencies. There is no law that can force any creditor to accept a credit counseling service payment plan. Bankruptcy can force secured creditors to accept a payment plan and in many cases simply eliminate your unsecured debts.
Many credit counseling agencies advertise themselves as "non-profit" but that does not mean they are free services. Many credit counseling clients are appalled to learn that as much as a third of their monthly payment is eaten up in fees to the counseling agency.
Credit card counseling services, non- profit or otherwise, are usually subsidized in some way by the major credit card companies, banking institutions, and other financial companies. If you choose to use a credit counseling service, or what is known as a "mortgage assistance firm," be sure to ask for three references, find out if your creditors will work with the service, confirm with the State of Texas, your county or city that the service is authorized to do business, and check its status with the Attorney General's Office and your local Better Business Bureau. Also check the list of approved credit counseling services for the Bankruptcy Court District in which you reside. You are also well advised to contact an attorney to help you decide if a credit counseling service is right for you.
Debt Settlement Services
