Bankruptcy Versus Debt Consolidation Services
Like you, I constantly see ads for companies that claim they can negotiate down your balances with your creditors, get your interest rate lowered, and consolidate your bills into one low monthly payment. These ads run on TV, radio and the internet all times of the day and night. Some of these companies are legitimate and do truly want to help you get out of debt while others are fly-by-night operations who take your money and run. Whether they are legitimate or not, they all have one thing in common—they cannot stop your creditors from coming after you for payment. How do I know? Because I represented creditors in the past and creditors have certain rules for those people trying to collect the debts on their behalf. If the offer from your credit counseling agency does not meet the requirements a collection agency is given by the creditor, the collection agency can accept the proposed payments but does not give up their right to sue you on the entire remaining balance of the debt.
One of the many advantages of filing bankruptcy is that, when your case is filed, you are afforded the protection of the Federal Laws regarding bankruptcy. The best and most well known provision is the “automatic stay”. When your case is filed, your creditors are not allowed to contact you or try to collect the debt—they are automatically stopped from these acts. I like to think of it as they have their arms tied behind their backs. This gives you a time to breathe, regroup, and get your ducks in a row while your attorney, the trustee and the Judge look at your financial situation and find a solution with your help.
When Your Back Is Against The Wall Because Of Debt, What Can Filing Bankruptcy Do For You?
Have you ever gotten behind on paying a monthly debt and then stopped paying altogether? Did you begin to avoid phone calls from your creditors or the monthly billing statement you get in the mail? Did you ever begin to ignore the debt and pretend it didn’t exist? Have you ever cashed out all or part of a retirement account to catch up on your bills?
Many people who owe money to their creditors can answer “yes” to one or more of these questions. Owing debts that you can’t pay can become overwhelming, stressful, and add unnecessary pressure to your life. But ignoring the debt can cost you more in the long run. Pretending that it doesn’t exist or ignoring it doesn’t make it go away. Filing bankruptcy can stop creditors from collecting debts that they are owed. Below are a few instances of how filing bankruptcy can help.
IRS Tax Levy/Garnishment of wages or bank accounts – Filing bankruptcy can stop money from being involuntarily taken from your paycheck or bank account. If a creditor sues you for a debt and gets a judgment against you, then they can execute on that judgment and garnishment may occur. It is better to file bankruptcy once you are sued rather than waiting until you are being garnished simply because you have full access to your money without restrictions.
Suspended driver’s license – If you are involved in a motor vehicle accident and are determined to be the responsible party who must pay for damages, then you could be sued by a plaintiff insurance company to pay the debt arising from the accident. You risk your license being suspended if you don’t pay. If you bankrupt such debt, you can prevent or have the suspension of your license lifted.
Past due utility accounts – If you are on the verge of having your utilities shut off due to non-payment, chances are you may have other debts that you haven’t paid as well. Filing bankruptcy can prevent a shut off of your utilities. You may then have continued utility service and start fresh with a zero balance account.
Does any of this apply to you? It is always best to seek counsel before things get too far out of control.
Question: When should you consider filing for bankruptcy relief?
There is no perfect time to file for bankruptcy. Everyone’s situation is different, but the best time to seek legal advice is when you first become aware that you are unable to pay your bills on a timely basis or when you begin to receive phone calls from creditors. Debt can easily accumulate if you lose your job, incur unforeseen medical bills, run up credit card obligations or take undue risk with investment opportunities.
Even if you have waited until a judgment has been entered against you or your wages are about to be garnished, you can still file bankruptcy to stop the garnishment and obtain a fresh start … free of debt.
From a credit standpoint, filing for bankruptcy eliminates most if not all of your debt which allows you to begin the rebuilding of your credit. Most individuals can obtain good financing terms on a future loan within two years of filing for bankruptcy so long as their credit score has improved after the filing.
Because the stress can be overwhelming, you should seek the advice of a reputable bankruptcy law firm. They will outline your financial options and help you manage or eliminate your outstanding debt. It’s a great feeling knowing that you will soon be on the road to financial recovery.