avoiding bankruptcy
negotiating with creditors
debt settlement rip-offs
Alternatives To Bankruptcy
by Jonathan Ginsberg
Before you actually file for bankruptcy, you should explore "non-bankruptcy alternatives." Because of an increasing number of delinquencies in mortgage payments, credit cards and even car payments, many banks and financial institutions are more willing than ever to negotiate long term payment plans to help keep you out of bankruptcy. Engaging in discussions with your creditors can be tricky, however, and before undertaking any negotiations, you need to prepare yourself.
Your first step should be to request current credit reports from Equifax, Experian and Trans Union - the three largest national credit reporting companies. Your credit report will identify your creditors, the delinquency status of your accounts and the amounts owed. Sometimes, when you see what you owe in one place, your total debt situation may not seem so terrible.
Can I make informal payment plans?
Once you know what you owe, you may want to create your own payment plan whereby you allocate portions of your disposable income to your various creditors. Obviously, your negotiating position improves if have cash and offer one or more creditors a lump sum payment.
If you can get your creditors to agree to a payment plan, you should confirm your understanding in writing. As part of your negotiations ask that negative credit references be removed when you finish paying your obligations. Creditors may not be willing to remove negative references, but they might be amenable to not responding to a "inaccuracy" dispute that you would later file with the credit bureau.
You should be mindful of the following when you enter into negotiations with credit card lenders or other creditors:
- avoid signing a "Consent Judgment" or "Consent Agreement" without having the document reviewed by a lawyer. Often, these consent documents contain waivers of valuable legal rights such as the right to respond to a lawsuit or a waiver of bankruptcy rights
- do not authorize any creditor to automatically draft your checking account. Later if you change your mind, you may not be able to stop the automatic draft
- insist that any agreement you enter into must be in writing
- do not sign any document that limits or waives your right to file a bankruptcy
What about Consumer Credit Counseling?
Another popular alternative to bankruptcy is Consumer Credit Counseling, a nonprofit organization financed by credit card companies and other consumer finance organizations. If your debt is not too overwhelming and you have decent income, CCCS may be able to create a payment plan that allows you to pay back your debts over time.
While CCCS is an excellent organization, they usually cannot help if you are behind on your car or house payment. They may also not be able to help if your credit cards are issued by a company not affiliated with MasterCard or Visa. CCCS seems to be most effective handling credit card or other installment debt.
Realize that CCCS is a non-profit organization created by credit card companies. Their mission is to assist you in paying back all of your credit card debt. CCCS counselors are not attorneys and they are not required to discuss with you bankruptcy or other options.
What About “Non-Profit” Credit
Negotiation Companies?
There are other "credit counseling services" you may see in the phone book, advertised on a telephone pole or advertised through unsolicited mail. Some of these services offer to clear your credit file or to get you a new credit file. Usually, these organizations are rip-offs and you should avoid them.
Some private debt negotiation companies promote themselves as being “non-profit” agencies. Do not be misled by the term “non-profit” Often the owners of these “non-profit” companies set up regular, for profit management companies that operate the non-profits, usually at a handsome profit for the owners. Several of these companies have been sued by State consumer protection companies.
Payment Plans Require Discipline
Finally, you should realize that it will take a great deal of both discipline and money to pay off substantial credit card debt. For example, if you have $10,000 in credit card debt and you want to pay it off in two years, you will need to pay $520 per month; in three years, you will need $382 per month. If you wanted to pay off the $10,000 at $200 per month, it would take you over ten years. Credit card debt is especially stubborn to eliminate because of the high (18% to 20%) interest that keeps adding up. You can figure out how long it would take you to pay off your debt by using an on-line calculator located at the Motley Fool financial web site credit center.
Even though I earn a living representing debtors in Chapter 7 and Chapter 13 bankruptcy cases, I encourage you to thoroughly investigate non-bankruptcy alternatives as part of your research. Changes to the Bankruptcy Code have increased both the complexity and cost of filing for bankruptcy and banks and you may find that a carefully negotiated settlement with your creditors makes the most sense for you.
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