Debt Negotiation: What Are Your Options Regarding Debt? (continued)
Recommendations: If you choose this option, we recommend you look in your area Yellow Pages under counseling or credit counseling for an agency named CCCS or Consumer Credit Counseling Services. Recommended by the organization that publishes Consumer Reports magazine, this well-established agency has an excellent reputation and will give you a free, confidential counseling session to explore your options.
4. Bankruptcy. Bankruptcy can wipe out a significant amount of debt in about four months if you file Chapter 7, but it isn't a good idea for those who have substantial property and assets that they want to keep. Many people think that bankruptcy is always something they can use if they have to, but not everyone qualifies. If you are in serious financial trouble, it is important to find out more about this option even if you aren't planning to file at this time. You need to know if it is a viable alternative for you, just in case.
Positive Aspects of Filing Bankruptcy:
(1) Can liquidate many unsecured debts, such as credit card and medical debts;
(2) If your bankruptcy is a simple one, the whole process will be over in about four months;
(3) Is an excellent solution for those with no property, few assets, and a modest net worth;
(4) There are federal and state exemptions that allow you to keep many personal assets;
(5) If you do-it-yourself, the process will cost you less than $400.
Negative Aspects of Filing Bankruptcy:
(1) It is not a good solution if you've been using your credit cards the past three months to make luxury purchases;
(2) Might have to sell your home and some of your assets;
(3) It is not a good alternative for those with a late model expensive car or those who have significant equity in their homes;
(4) Will have a bankruptcy notation on your credit report for 10 years, which will result in having a hard time getting financing for the next 2 to 3 years, and what financing is obtained will be at a high interest rate.
(5) If you hire an attorney, it will cost you at least a $1,000 for a simple bankruptcy and $3,000 to $5,000 or even more for a complex one.
Recommendation: Good choice if you can't cut back on expenses, have a modest net worth and lots of unsecured debt.
5. Debt Negotiation. You can negotiate for alternate repayment plans and reduced settlements with unsecured creditors and debt collectors. If you are successful, you can settle your unsecured debts for less than what you owe, get out of debt quicker, and avoid lawsuits.
Pros -- (1) Can get out of paying thousands of dollars in debt; (2) Can avoid judgments and wage garnishments;
(3) Can avoid filing bankruptcy.
Cons -- (1) Credit rating will be damaged for next seven years and will have trouble getting financing for the next 2 to 3 years. What financing is obtained will be at a higher interest rate; (2) Might have to pay federal tax on forgiven debt; (3) No guarantee it will work; those with assets are taking a chance they will be sued.
Recommendation: Good choice if bankruptcy and credit counseling won't work for you.
Next topic: Is Debt Negotiation for You?
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