Lee Legal

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.