April 16, 2010 - William L. Henry IV
If you are facing overwhelming debt and you are looking for small business bankruptcy alternatives or personal bankruptcy alternatives, you are probably considering debt management plans, credit counseling, or debt settlement. As attorneys, we find that most people consider a bankruptcy filing a "last resort" option, which is only to be used if all other choices are exhausted.
In fact, even advertisements you see on T.V. or hear on the radio reinforce the negative implications of bankruptcy. Of course, the negative implications of not filing bankruptcy are never discussed--and the negative implications of bankruptcy alternatives are never heard.
Debt Settlement: Under debt settlement, you send monthly payments to a debt settlement company which builds up a sum of money and attempts to settle with your creditors. The debt settlement company typically advises you to stop paying your credit card bills.
Not only does this seriously damage your credit for a long period of time, but the credit card company has no obligation to settle and can still sue you--even if you are proposing a settlement arrangement. Once the credit card company receives a judgment in Colorado, it can garnish up to 25% of your wages and garnishment your bank accounts.
In addition, if a credit card company settles your debt for less than the amount owed, it is a taxable event. In other words, you may be required to pay tax on the amount settled.
The legal process for eliminating debt is a Chapter 7, "Fresh Start" bankruptcy; not debt settlement. There are no tax problems in a Chapter 7 bankruptcy, wage garnishments stop or are prevented, and you do not pay back your credit cards if your debts are dischargeable and the bankruptcy concludes successfully.
Debt Management Plans ("DMP"): Debt management plans try to pay off your credit cards and other debts over time. Under a DMP, the company pays your creditors over time and takes a fee for managing the process. You will still pay interest back to your creditors. DMPs work if all of your creditors can be included in the plan, the interest rates are reduced, and you can afford the payments. DMPs will not stop a foreclosure.
Under a Chapter 13 bankruptcy, which is referred to as a "wage earners repayment plan," you make monthly payments to payback your creditors. The amount of the payments are determined pursuant to the bankruptcy code. Debts can often be discharged or reduced in a chapter 13 bankruptcy. Bankruptcy can stop or restructure foreclosures.
Bankruptcy: Bankruptcy is the legal process to eliminate or restructure your debts. Bankruptcy stays on your credit report for up to 10 years. Nevertheless, your credit score may increase after filing bankruptcy and, even if your credit score does not increase in the first 12 months it may in the long run.
Talk with a bankruptcy lawyer to discuss your debt problems and to determine which solution is right for you. Our bankruptcy attorneys practice in Parker, Highlands Ranch, Castle Rock, and throughout Colorado. Contact us at (303) 688-0944 or make an appointment online at www.robinsonandhenry.com.
We are a debt relief agency, we help people file for bankruptcy relief under the Bankruptcy Code.