Often, debtors end up declaring bankruptcy when they are overwhelmed by debt and are unable to repay their creditors. Declaring bankruptcy is not always an ideal situation to be in. However, it is a relief to know that you have other alternatives that could make bankruptcy your last option. If you are at that point in your financial life where you are considering bankruptcy or you want to understand the options you have in this situation, it is wise to seek the services of a competent San Diego Bankruptcy Attorney. We help clients throughout San Diego, CA, solve their financial issues through bankruptcy declaration or the different alternatives to bankruptcy as you will find below.
What is Bankruptcy?
Bankruptcy is the legal process where individuals struggling to settle their debts use to gain financial relief. Bankruptcy cases are dealt with by the federal court since the California laws provide the legal rights for this process. Declaring bankruptcy allows you a short period to breathe away from creditors and debt collectors.
However, bankruptcy will not eliminate all your debt especially the taxes and fines owed to government agencies. Besides, bankruptcy affects your future credit score which will make it difficult to get a loan. Bankruptcy records are public, thus, anyone who needs to know your financial status can request for those forms. Therefore, before you decide to file for bankruptcy, it is crucial to consult a bankruptcy attorney who will take you through other options of debt relief.
Common Alternatives to Bankruptcy
If your greatest concern is constant harassment by the creditors, declaring bankruptcy may not be the best way to stop the abuse. You can possibly get the debt collectors off your back by other means as discussed below
Mortgage or loan consolidation is where the loan terms are modified beyond the original lender-borrower agreement. Under normal conditions, a loan should get paid within the agreed period since the principal payments are made at regular intervals. On completion of the loan repayment scheme, the property is released to the borrower.
However, any change to the loan terms is considered modification. Some of the loan modifications are the variation of the principle, a reduction in penalties, a change in float rate, and a decrease in the monthly installments which extends the payment period.
In the recent past, the options to manage debts were limited and most people resulted in filing for bankruptcy once the debt became too high to manage. The presence of some methods like debt consolidation helps you to solve the debt problems. Debt consolidation loans are used to pay off existing debts. Using this loan to pay all your debt leaves you with only one lender to deal with and a single loan to manage. Although you are still in debt, it makes it easier for you to make payment plans and avoid financial stringency. Some lenders will give the debt consolidation loan without collateral making these loans accessible to all people.
If you are having problems when it comes to repaying your unsecured debts, you may try settlements. In the occasion where you are suffering financial hardship due to job loss, some creditors are always willing to make an arrangement with you to make the payments. Each creditor has varying rules on how they prefer to receive the payment. You need to contact your individual creditors to understand the options they have for you.
However, debt consolidation has its shortcomings and it is wise to use this method if you are financially incapable to settle your debts. Negotiations for these loans can take very long and you may be required to cease paying your credit cards, loans or other debts, but instead, save the money. Although most individuals end up paying at least 75% of their debts, the process takes time. This can put you at risk of getting sued for overdue credit.
Debt consolidation or bankruptcy should not be an option if you can eventually settle the debts. Individuals who want lower interest rates may use their personal loans to refinance with a non-profit debt management plan. Before making a decision to use this method for debt relief, careful research should be done and advice from an expert bankruptcy attorney taken.
Credit Card Negotiation
If you are wallowing in credit card debts or struggling to pay your debts, you may think filing for bankruptcy is the best option. However, to protect yourself, you can consider other alternatives to dig yourself out of the debt. The process may be daunting depending on the circumstances since lifestyle changes have to be made, but you get peace of mind at long last. The process of credit card negotiation involves being accountable and taking control of your financial life.
First, you need to get your credit card report which you are entitled to annually. Find an attorney to help you understand your financial situation which is the most important thing in this case. With knowledge of how much you owe, you can consider the approach that best suits the situation such as:
- Sale of Assets
Selling your home or car may seem like an extreme move, but can prove to be a resourceful means to settle your debt and avoid declaring bankruptcy. If the mortgages you are paying are too high, consider moving to a lower house cost or selling the property. You can also sell your expensive car and purchase a cheaper one. Although you might be glued to the area you are living in or the car you are driving due to social status and friends, you can save yourself from bankruptcy by downgrading.
- Securing a personal loan
Your credit card score may prevent you from getting a regular loan to pay off your debts. However, a low-interest personal loan can help you relieve your credit and debit card debts; but if carelessly handled, these loans can backfire.
- Finding another Job
If it works well with your family and job schedule, getting a second job can improve your financial strength. To pay off overwhelming debts, individuals secure almost three jobs. You should rather cut down your expenses than file for bankruptcy. If you are trying to improve your access to finances to pay off your debts, you should consider a lifestyle change so you can cut on unnecessary costs. Although this change in lifestyle to avoid bankruptcy is challenging, the situation will help you gain a new outlook on life and motivate you to do well in business or do better in another job.
- Negotiate with your creditors
Debtors could possibly negotiate their way out of debt with creditors. You have enough assets that creditors can possibly trim the monthly payment or eliminate interest to your loan. With the help of a good attorney, you can get your creditors to change the terms of your debts.
If you sold your home or car, you can negotiate a lump sum pay off. Negotiating on your own could be tiresome and problematic; therefore, working with non-profit credit counselors could speed up the process and improve your chances of getting a better deal.
In the case where your monthly credit card debts rival your mortgage and the high interests make it difficult to pay the debt, it might be the time to call your credit card company and find a solution. Here are steps you could follow to negotiate your debt:
- Understand the extent of your debt
The first step you should take before calling your credit card company is to assess what you owe. In the case where you own more than one credit card, it is important to go through all your bank statements and make a list of how much you owe considering the interests that come with each credit card. Align the information of each credit card with the debt to make it easier for you to contact the company.
- Explore your options
Having credit card debt may feel financially overwhelming, thus, it is important to weigh the financial impact before deciding on the method to settle on. Before you pick your phone to call the credit company, you need to understand the settlement options they have and whether you can afford the plan. The types of settlements include
- Workout agreement: With the workout agreement, you can request your credit card company to waive your monthly payments, remove the penalty fee or lower the interest to your debts. The actions will reduce the amount you owe and can help you pay the remaining debt within a shorter period;
- Lump sum settlement: The option involves negotiation to pay less than you owe at once. However, this method works when you have access to a large sum of money that you can use to pay the debt upfront;
- The Hardship Plan: Your credit card company may be willing to put you through a hardship plan in the case where your financial difficulty is as a result of a serious illness or job loss. In this situation, your credit card fees interest rates and minimum payments are lowered. If your financial hardship is temporarily considered asking for a hardship plan from your credit card company;
- Debt Management: There exist nonprofit organizations which offer programmers for debt management. Under this program, the credit counselors work with you and your creditors to form a payment plan. You are required to deposit the money with the organization and in return pays your creditors as scheduled. However, to use the services of credit counseling’s you must be in a position to pay off your debt within 60 months.
- Understand the risks
All negotiations have side effects; hence, it is important to be aware of them. The settlement you decide to settle on should depend on your financial capability. A workout plan is likely to lower your credit card scores and increase your credit utilization ratio depending on how your debt is reported to major credit bureaus.
If you want a little negative impact on your credit score to consider using the services of non-profit credit counselors. Besides, an account that is settled remains on your credit reports for seven years and makes it challenging to acquire a loan in the future.
- Call the credit company
If you have decided that negotiating with the credit card company is the best option for you to evade declaring bankruptcy, call them and ask for the department in charge of debt settlements. You may want to prepare what to say in advance by writing a script. Clearly explain your situation and state exactly what you want.
- Get all details in writing
Once you get in contact with the relevant individuals to negotiate with, document everything making sure all terms of the deal are put in writing. This will ensure that even when the person you talked to leaves the company, you have proof of the agreements you made.
Bankruptcy should always be the last result for an individual who is unable to settle their debts. Bankruptcy affects the future borrowing abilities by lowering your credit score, hence, before you think of declaring yourself bankrupt, it is wise to try a short sale. A short sale is a situation where you agree with your lender to sell the property for an amount lower than the remaining mortgage and the proceeds going to the creditor. Besides helping you to avoid foreclosure, a short sale is an easier alternative for both banks and lenders.
Although your credit score is still affected by the short sale, it is easier to recover from this situation as compared to recovering from the damage caused by the declaration of bankruptcy. However, there are requirements you need to meet for a short sale to go through:
- You are unable to pay your debts as a result of financial hardship,
- There is a qualified buyer making an offer to purchase your property,
- The creditor must be in agreement with the short sale offer,
- The market value of your home is lower compared to the balance due to the creditor, and
- You lack the financial capability to settle your debts.
Due to the complicated factors surrounding the short sale, it would be easier for you to navigate through this process with the help of a competent bankruptcy attorney.
Deed in Lieu of Foreclosure
This is a deed instrument where you convey all your rights and interests from a property to the creditor. The aim of the deed in lieu is to satisfy an outstanding loan and avoid the foreclosure proceedings. This act offers a variety of advantages for both the lender and the borrower. The borrower is immediately relieved of the burden of paying for the loan.
When the loans are repaid, you are able to get away from the shame of undergoing foreclosure of your property. Although the deed in lieu affects your credit score it is easier to regain compared to recovery from the damage caused by foreclosure. The creditor is saved the time and cost of false fully possess the property.
For a deal to get considered a deed in lieu of foreclosure, the debt should be acquired the property getting transferred. The settlement should have total consideration that is fairly equal to the total market value of the particular property, both the lender and the borrower should enter in this agreement voluntarily thus the lender will only sign the agreement after receiving a written consent from the borrower indicating that they are willing to enter the deal. This will help protect them from a claim that they pressurized the borrower to sign the agreement. In the case where the debt exceeds the market value of the property, the lender may decide not to enter into the deed in lieu agreement. In other cases, the creditor may agree since they will end up acquiring the property after the foreclosure.
Even when you undergo the deed in lieu you won’t be relieved from the mortgage obligations unless the lender agrees to let it go. A deed in lieu of foreclosure merely transfers the property title from you to the lender. If no other arrangements are made, you will be held accountable for the results of the property sale.
Most lenders issues a 1099-C for debts forgive in the process of a deed in lieu since these debts are considered income and you can owe the tax on these debts unless you file special forms with the taxing authorities. To effectively negotiate for a deed lieu, you will require help from an experienced bankruptcy attorney.
Consult with a Bankruptcy Attorney Near Me
Everyone’s financial situation is different and the methods to solve them vary from case to case. The San Diego Bankruptcy Attorney helps you to understand your situation and the options available to get you out of that tricky situation. Our well-experienced attorneys serve clients in San Diego, CA. If you have concerns about your financial situation and alternatives to bankruptcy that are available for you, you will need us by your side. Call us today at 619-488-6168 and let us give you the assistance you need to address your issue.