Bankruptcy Alternatives – Debt Consolidation – Debt Settlement
There are a several alternatives to filing for bankruptcy for individuals who are facing financial difficulties from credit card debt and medical bills. The following are a few of the alternatives available to individuals
Many of your creditors may be willing to settle your debt for a lump sum payment of a percentage of your debt. The percentage that they are willing to accept under what terms is dependent on which creditor you are negotiating with and your negotiating skills. You can negotiate these terms on your own or seek a company who specializes in debt settlement. Ensure that any company that you select to negotiate your debt is reputable and is charging you reasonable fees. Debt settlement companies generally work by accumulating your funds in an account until there is enough money in the account to pay one creditor. This process is repeated for each creditor that money is owed to. There are some drawbacks to debt settlement that you should also be aware of when selecting this option:
First debt settlement can be a lengthy process. There are creditors who may be difficult to negotiate with and may take their time with agreeing to settle. In addition, this process may take some time since you will have to accumulate money for each creditor to pay the agreed lump sum to each creditor. During this process you will have to deal with harassing creditor calls.
Second debt settlement does not protect you from creditor lawsuits; While you or your debt settlement company are negotiating with your creditors, you are at risk for possible lawsuits from your creditors.
Third, you will generally pay taxes on any amount over $600 that the creditor forgives. Any amount over $600 that is forgiven by the creditor is taxable income.
According to the IRS, if a debt is canceled, forgiven or discharged, you must include the canceled amount in your gross income and pay taxes on that “income,” unless you qualify for an exclusion or exception. Creditors who forgive $600 or more of debt for you are required to file Form 1099-C with the IRS. source
Debt consolidation involves combining all of your unsecured debt and making one monthly payment, with generally a lower interest rate. Companies that assist with debt consolidation attempt to lower your finance charges and interest rates by working with your creditors. Generally, debt consolidation companies can obtain lower interest rates on your unsecured debts, but there may be companies that that are unwilling to lower your interest rates. There are some drawbacks to selecting debt consolidation to handle your debts:
First it may be difficult to complete the program where you are struggling with paying for basic necessities. Although debt consolidation may lower your interest rates, it is not a viable alternative where you are struggling to pay for food, clothing, medical and other basic necessities.
Second you are generally required to agree that you will close your account and not open new accounts unit you complete the program. This can be extremely difficult where paying 100% of your debt will take many years.
Need Help Exploring ALL of Your Options?
The founder of Southern California Law Advocates (SCLA), Orange County bankruptcy attorney Norma Duenas, is an experienced bankruptcy attorney who graduated from the University of San Diego Law School, Cum Laude. Ms. Duenas has handled hundreds and hundreds of Chapter 7 and Chapter 13 bankruptcy cases – simple and complex.
Attorney Norma Duenas will make time to sit down with you personally if you call and schedule a free and confidential consultation.