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What are some good alternatives to bankruptcy?
I have about $65,000 in credit card debt, most of it due to an accident that required a lot of medical care. At the time, I did not have health coverage, so I had to pay with several credit cards. Now, I can barely make the monthly payments and the interest rates keep going up every time I am unable to pay.
I have looked into bankruptcy, and I'm almost ready to call a lawyer, but I wanted to know if there were any alternatives that I should consider first.
Answers
While there is nothing that is as effective and quick as getting help from the bankruptcy courts, there are some options to consider. You can try to negotiate with your credit card companies in two ways. One is to try to get some debt forgiven, and the other would be to try to work out a debt settlement plan.
How Debt Forgiveness Works
If you have fallen behind and allow your accounts to become delinquent, your credit card company may offer you an option to pay off some amount of the debt and "forgive" the rest. Usually, you can get away with paying about 30% of the balance, and the rest will be forgiven. The problem is, the credit card company will write the loss of as an expense. As a result, you will be liable to the IRS for taxes on that remainder. They essentially consider it as income for you.
This comes as a surprise to many people who are offered this arrangement by a credit card company, and taxes on $40,000 can be substantial.
Try to Use a Debt Settlement Attorney
Many bankruptcy attorneys can also offer a debt settlement service. But make sure you use an attorney and not a debt settlement company. The law requires that only an attorney can provide debt settlement services, and I'll tell you why in a second. Many debt settlement companies claim to have an attorney represent you, but usually that is not the case.
Debt settlement works by having a trust account setup and making payments into that every month instead of your credit card companies. Obviously, it can take over a year to build up enough cash in that account to settle the claim with the banks and credit card companies. During that time, you will have to deal with lawsuits, so it's important that a lawyer handle the case to mitigate the legal trouble and delay it long enough to save up the lump sum offer.
Talk to a Bankruptcy Lawyer to get legal advice about using bankruptcy vs. debt settlement and find out which option would be best for you and your future. See the link I referenced below for more information.
Good luck.
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Posted by Staff Writer on 01 Apr 2010
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