Posts Tagged ‘budget’

Debt Settlement is a Rip-Off

May 15, 2010 • No Comments • Personal Finance

While there is no independent research into the success rates of so-called “debt settlement” companies, company reports and anecdotal evidence suggest that fewer than one in four of those who hire these companies actually complete their programs.  Even more troubling, up to 10% of debt settlement clients are sued by their creditors while in a debt settlement program.  Here’s the way these companies are supposed to work.     

Debt Settlement Companies Are RipoffsFirst, the debt settlement company gets paid.  They typically charge several hundred dollars as an initial “administrative fee” to set up your account.  In addition, they will charge you a monthly service fee.  The company requires a monthly payment, however instead of sending this money to your creditors, the company keeps your money in trust until there is enough to pay a creditor either the entire balance of your debt, or some agreed-upon reduced amount.    

Unfortunately, this process can take several years to complete, depending on the number and amount of debts you owe.  In the meantime, your creditors can sue you, garnish your wages, and continue to harass you.  In addition, during the entire “debt settlement” process, interest and fees will continue to accrue.  It is not very surprising that so few of these programs succeed.   

The Washington Post recently reported that debt settlement scams are on the rise.  Advocacy groups say the industry’s advance-fee model and lack of regulation have allowed unscrupulous firms to take advantage of desperate customers.  Bankruptcy is very frequently a much better option.

People do not choose to put themselves into unfortunate financial situations, but debt settlement companies often make bad situations worse.  These companies collect huge fees, grow debts, damage credit scores, and in the end, typically fail.  Bankruptcy, on the other hand, offers immediate protection from collection efforts, ends garnishments and lawsuits, and allows you to start getting your finances back on track almost immediately.  The typical Chapter 7 also takes about three months to complete, which is far less time than the typical debt settlement plan.   

If you are considering either debt settlement or bankruptcy, a good first step is to schedule a free consultation with a bankruptcy lawyer.  Licensed in Washington, D.C. and Virginia, attorney Brian Lee can help you assess your financial options.  Call 202-448-5136 or email bvlee@lee-legal.com. 

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Easing the Stress of Bankruptcy

Apr 27, 2010 • No Comments • Bankruptcy

If you find yourself in an impossible financial situation and can’t see any way out, bankruptcy may be a good solution for you.  Bankruptcy can help you reduce or even eliminate your debts.  Bankruptcy also provides potent protection against creditor collection efforts and harassment.  While bankruptcy can help ease your mind financially, however, it can also cause stresses of its own.  Below we will explore some techniques to prepare you for getting through the bankruptcy process with your sanity intact.

UNDERSTAND THE PROCESS

An experience bankruptcy lawyer in D.C. should thoroughly explain to you the basic process and timeline of your bankruptcy.  A Chapter 13 bankruptcy will typically last three to five years, while a Chapter 7 bankruptcy will typically be completely administered in just three to four months.  You should remember that the effects of bankruptcy will not be with you forever.  Over time, you will not feel the effects of the bankruptcy at all.  Within the first year, you’ll begin getting credit card offers and be able to obtain car financing.  After another year, depending on your circumstances, you may even qualify for a home loan.  The bankruptcy will remain on your credit report for up to 10 years, but the impact of the bankruptcy on your credit rating and score will begin to diminish immediately after your case is closed. 

TALK ABOUT IT

For many people the idea of declaring bankruptcy is embarrassing.  You should have a close friend or family member with whom you can candidly and confidentially discuss your financial situation.  Talking about your situation is very therapeutic and can help you to identify the problem areas in your life.  A person with a different perspective on your situation can help you decide how to solve the problems you are having, and how to accept and manage the things you can’t fix.  Through discussion, you can find ways to help minimize the impact of the bankruptcy on your life. 

THINK AHEAD

You should establish a clear plan for reestablishing good credit once you emerge from bankruptcy.  You attorney can help you fashion a strategy catered to your specific situation.  Your primary objectives should be to steadily rebuild your credit and your savings.  You will want to create a budget that is both realistic and geared toward your personal financial goals.  Being debt-free is a liberating feeling.  You should consider your bankruptcy a fresh start, and an opportunity to stabilize your long-term finances.

TAKE A BREAK

Once your bankruptcy case is closed, you should plan on resetting your mental state, too.  Although you might not be in a position to take an expensive vacation, you should treat yourself to a dinner out or a special night with your friends or family.  Make some time for some activity or pastime that you find enjoyable.  Bankruptcy will help ease your mind financially, but you may need to employ several of these techniques to help you ease the stress of the process itself.

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Alternatives to Bankruptcy

Jul 28, 2009 • No Comments • Bankruptcy

The decision to declare bankruptcy is usually a difficult one.  To get started, I thought I would lay out the alternatives to bankruptcy, namely Budgeting, Credit Counseling and Debt Settlement.

BUDGETING:  If you can find a way to pay your bills on your own, then you should try to calculate how long it will take to become debt-free.  You should attempt to design a feasible budget that pays more than the minimum payments toward the debts.  At the same time, you cannot sacrifice the health and welfare of yourself and your family.  Dependent upon your income and debts, a budget that pays at least triple the minimum monthly payments toward unsecured debts (such as credit cards) might take more than 20 years to completely pay. 

CREDIT COUNSELING:  A good credit counseling service should determine your income and expenses and help you fashion a workable budget, if possible.  Credit counseling services often bad-mouth other debt reduction alternatives (i.e., they sometimes say “bankruptcy is a 10 year mistake”).  If the credit counseling service suggests you see a bankruptcy attorney, or if the payment amount they come up with is too high, then bankruptcy may be a good option.

DEBT SETTLEMENT:  Attempting to settle your debt usually requires a sizeable amount of cash.  Many people use an attorney for this since there are many pitfalls to debt settlement.  If you can come up with cash (i.e., from a home refinance, tax refund check, inheritance, personal loan, etc.) then frequently you can settle your debt for 40% to 60% of your balance.  You must get whatever agreement you obtain in writing prior to sending money.  Two caveats.  First, many of my bankruptcy clients tried debt settlement and were simply ripped off by the companies.  There are a lot of companies out there that will take your money and never produce any results.  If you feel debt settlement is right for you, check up on any professional or company you are considering retaining with the Better Business Bureau.  And the second caveat: The IRS considers forgiven debt to be taxable income.  Thus, if you settle $100,000 of debt for $60,000, then you may owe taxes on the $40,000 that was forgiven.

If none of these options work for you and you are treading water or sinking financially, then bankruptcy is probably a good idea for you.  Every situation is different, however, and you should talk with a professional who can help you assess your options.

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