If you are struggling with debt in California, there are two ways of dealing with it. You may opt to file for bankruptcy under Chapter 7, Chapter13, or Chapter 11. You may also go for a non-bankruptcy debt settlement. Debt settlement is a reliable option that helps you reduce the amount of debt you owe and the applicable interest rate. If you have missed payments on your debts like credit card debts and you are in default, you may not know the best way forward. San Diego Bankruptcy Attorney can assess your debt situation and advise you on the best way forward.
Bankruptcy in California
Bankruptcy refers to a court proceeding whereby a judge and court trustee examines the assets and the liabilities of the applicant. Upon making all the necessary considerations, the court decides whether to discharge the debts of the bankruptcy applicant. When the court removes your debts in bankruptcy, you will not have a legal obligation to pay your debts.
Individuals and businesses can file for bankruptcy. However, in California, individuals and not businesses are the ones who often file for bankruptcy. You may have taken up a financial obligation like a mortgage, student loan, or an auto loan, and you have no way of clearing it. Studies indicate that of all yearly bankruptcy, individuals and not businesses file most of the cases in California. Most of the people who file for bankruptcy in the United States are not particularly wealthy.
Filing for bankruptcy allows you to start over. However, it is essential to note that bankruptcy will adversely affect your credit history and your ability to obtain credit in the future. Bankruptcy will offer you immediate benefits like stopping a foreclosure on your home. Filing for bankruptcy may also help to put on hold the repossession of your vehicle. You may be able to stop all legal actions, which creditors use to collect debts, including wage garnishment, by filing for bankruptcy.
There is no perfect time to declare bankruptcy. However, you should consider several factors to help you if filing for bankruptcy is a good option. For instance, you should consider the length of time you are likely to take to clear your outstanding debts. If it is going to take many years to clear your debts, bankruptcy may be a viable option. Bankruptcy can give you a second chance. You do not have to punish yourself with debt, especially if you have no means of accessing finances.
Bankruptcy will have some effects on your credit history because it will remain in your records for 7-10 years. However, you will get a good mental and emotional relief after filing for bankruptcy. You will have an opportunity to start anew. You will no longer face harassment from creditors.
At times, you may not qualify for bankruptcy in California. You do not have to give up if the court decides that you are an eligible candidate for bankruptcy. You may take advantage of other debt management options. Some of the alternative ways of managing debt include debt settlement and debt management programs.
Debt Settlement in California
Non-bankruptcy debt settlement entails entering into an agreement with your creditors. The creditor agrees to accept a lesser amount than the amount you owe him or her as full payment. Upon entering a debt settlement agreement, the collectors will no longer bother you. In addition, the creditor cannot sue you for unpaid debts. Debt settlement may seem like the best option to deal with debt. However, it is crucial to seek the counsel of a bankruptcy attorney when choosing between filing for bankruptcy and debt settlement.
You may consider debt settlement if you have skipped numerous payments. If the collector or creditor believes that you could pay the full amount you agreed to, he/she may accept less than you owe. Debt settlement is a good option if you have a poor credit score, you are behind on loan payments, or you do not have enough money to keep up with your debt obligations. The creditor mainly agrees to reduce what you owe in the form of unsecured debt like credit cards. Debt settlement is not an option for some types of debts. For instance, if you owe money on your mortgage and your house is on the verge of foreclosure, debt settlement is not an option. It is also not an option if you have an outstanding car loan, and your vehicle is on the verge of repossession.
It is possible to handle a debt settlement on your own. However, the process may be risky, especially if you do not have experience in handling hard bargains. The debt collection agency or the creditor may end up intimidating you into paying more than you should. An attorney has the necessary experience and can negotiate a settlement that will help you make significant savings and give you an opportunity to start over. The debt settlement process may take between 36-48 months. This will provide you with ample time to put money into an escrow account to help you make a competitive offer to the creditors. However, during this period, the interest rate and the late payment fees will continue to accumulate. When you finally manage to clear the debt as agreed with the creditor, the negative credit score will remain for seven years. Your credit report will indicate the debt as settled, implying that you did not pay the debt in full. Therefore, if you plan to apply for another loan in the future, the prospective lenders will be able to see the settled account on your record and decide whether to lend to you.
Debt Process System
When you plan to go for debt settlement, you have to follow various steps. The process entails negotiating with creditors and agreeing on the amount payable. The steps of debt settlement include:
Choosing Between a Debt Settlement or Attorney
It is not advisable to go through a debt settlement plan alone. It is imperative to seek the counsel of a debt settlement company or an attorney. The attorney will negotiate with creditors on your behalf. The negotiation aims to reduce the total amount of debt payable. Experience is necessary. Your attorney is likely to have assisted numerous clients before to settle their debts. You will need to have enough money to make the lump-sum offer to your creditors. Therefore, even as the attorney negotiates on your behalf, you should start saving money immediately.
Meeting with the Creditor
The second step in the debt settlement process entails meeting with the original lender and pleading or negotiating with him/her. This process involves discussing with the lenders and finding out if they are willing to settle. If your loan is in default for more than six months, the lender is likely to have handed over your debt to the collection agencies. Therefore, you and your attorney will conduct negotiations with the debt collection agency instead of the lender. The goal of the collection agency is to get as much money as possible from you. With the help of an attorney, you can be able to negotiate for a lower settlement amount.
Consolidation of Funds to Pay the Lump sum
After agreeing with the lender, you will stop paying the creditor and instead start saving money to make an offer to the lender. You may begin sending money to a representative to help build a lump sum. However, it is essential to note that during this time, your interest on the loan will continue to grow.
Making an Offer
Upon saving enough money to pay the creditors, your attorney will help you to make an offer to the creditors. Your creditor does not have an obligation to accept your debt settlement offer. Therefore, you should be patient as your attorney or debt settlement company negotiates with the creditor. If the creditor agrees to a debt settlement, he/she should do so in the form of writing. Upon accepting your offer, the creditor should send a notice to the major credit bureaus informing them of your debt settlement.
Meeting the Costs
While saving money to make the lump sum payment, you should also be aware of the other charges involved. For instance, if you choose to use a debt settlement company, you will have to pay them a service fee. The same case applies if you seek an attorney to negotiate on your behalf. For the amount forgiven by the creditor, you will have to pay the tax amount owed to the IRS.
Eligible Debts for Debt Settlement
Outstanding medical bills and credit card debts are ideal for debt settlement. In case the debtor files for bankruptcy, the medical service provider and the credit card company are not likely to receive any payment. According to the Federal Reserve Board, the majority of households in the United States often struggle with credit card debt. According to the board, credit card debt is seriously delinquent, and this makes it ideal for debt settlement. Most Americans struggle to repay medical debt. This makes the debt ideal for debt settlement.
If you are struggling to repay your federal student loan, it may not be easy to reach a debt settlement agreement. If you default your student loan, the government gives your details to a debt collection agency. The government may allow you to make a lump-sum payment to the debt collection agency. However, you have to meet some conditions. First, you have to pay the entire amount of your student loan and the accrued interest but get an exemption from paying the collection agency fees. The government may also allow you to pay the entire principal amount and half the interest of your loan. The third option entails paying a certain percentage, typically 90 percent of the remaining principal and interest amount of the loan.
However, it is easier to get into a debt settlement agreement when dealing with a private student loan instead of a public student loan. Students obtain private student loans from banks and not the government. Therefore, unlike federal student loans, private student loans are a better target for debt settlement.
How can you tell if you qualify for a credit card debt settlement?
In most cases, credit card companies do not have in place specific guidelines for people who are eligible for debt settlement. However, the best candidate for a credit card settlement is the one who is no longer able to afford the minimum monthly payments for the credit card. At times, a creditor may not agree to a debt settlement plan because they are under no legal obligation to do so. However, for a credit card loan and other unsecured loans, debt settlement may enable a creditor to recover more money than while using other collection methods like collections agency.
Alternatives to Debt Settlement
Other than debt settlement, there are alternative ways of dealing with debt without applying for bankruptcy in California. Some of the alternative ways of handling debt include:
Debt consolidation may be a viable option if you are overwhelmed by your credit card debt. Consolidation can help you lower the interest rates on your debts, helping you pay lower monthly installments. Consolidation entails merging different debts into a single debt. You can pay off the single debt through a management program or a loan. The option of debt consolidation may come handy if you are dealing with high-interest debts like credit cards.
This debt relief will give you a way out of the situation many consumers find themselves in at the end of the month. You will not have to deal with multiple debts from multiple credit card companies with different deadlines. You will enjoy the certainty and the peace of mind of dealing with only one loan installment. It will be easy to budget your money effectively. Debt consolidation also goes by the name credit consolidation or bill consolidation. It is a great option to help you get out of debt fast and to help improve your credit score.
When you are preparing to consolidate your debts, the first step entails adding up all the installments you pay to different debts and the applicable interest for the various debts. This will give you a good baseline to make comparisons when considering different consolidation options. After getting the consolidate installment for all your debts, review your monthly expenditure. For instance, you may consider the money you spend on housing and other utilities like housing, food, and transportation. After adding up your monthly expenses, deduct them from your monthly income to get the balance. This will help you if you can afford the consolidated monthly installment.
You can choose between the options of debt consolidation with a loan and debt consolidation without a loan. The common or the traditional method of consolidating debt is to obtain a loan from the bank or other credit unions. You can then use the loan to eliminate all your unsecured loans with high-interest rates. When applying for a loan to consolidate your debts, you may negotiate on the repayment interest with your lenders. The loan repayment period may vary depending on your agreement with the lender. However, the most important aspect is the interest rate applicable to the consolidation loan. The rate should be lower than the interest rates of your unsecured debts you intend to consolidate. If the interest rate on the loan is not lower than the combined interest rates of the debts you seek to consolidate, the consolidation with a loan may not be a good strategy for you.
When determining the interest rate to charge on the consolidation loan, the lender may determine several factors. For instance, the debtor may consider your credit score. If you are behind in making your credit card payments, there is a likelihood that your credit rating is not good, as well.
You may also choose the option of debt consolidation without a loan. You don't need to take another loan to consolidate your other debts. You may opt to go for credit counseling agencies that provide non-profit debt consolidation. If you opt for this debt management program, you will not need to take out a loan. The non-profit credit counseling may work with credit card companies.
At times, debt consolidation may not be a good option. First, you must have self-discipline for debt consolidation to work for you. If you are not willing to change your spending habits, and you intend to continue using your credit card as before, consolidation may not be the right option for you. One of the factors that you need to consider when seeking debt consolidation is putting away your credit card.
For debt consolidation to work, you have to be willing to make a viable monthly budget and abide by it. You have to understand that a debt management program requires commitment and a one-time monthly payment for you to enjoy the privileges of debt consolidation.
Contact a San Diego Bankruptcy Attorney Near Me
If you are struggling with debts, San Diego Bankruptcy Attorney can help to evaluate your debt situation and advise on whether to file for bankruptcy. If bankruptcy is not a viable option, our attorneys can advise you on the feasible ways of handling debts. Contact us at 619-488-6168 and speak to one of our experienced bankruptcy attorneys.