Bankruptcy or Debt Consolidation: 3 little-known facts
Bankruptcy or Debt Consolidation: 3 little-known facts
Bankruptcy or Debt Consolidation,what are the little known facts? The most misunderstood fact is that people like you even want to file bankruptcy First of all, No one wants to file bankruptcy. It is an urban legend that people who file bankruptcy in San Diego are doing so lightly. They are not.
But, if you are driving down the road thinking about the money issues you and you hear the advertisements for debt consolidation. It sounds like a good thing. You wonder , should I try bankruptcy or debt consolidation. Which is better?
The Great Recession is still plaguing many of us. News outlets are reporting that jobs aren’t being created and that the only reason unemployment claims are down is that for many, their benefits are exhausted. With all these stressors, one might think people would be flocking to bankruptcy protection in droves.In proportion to the economy, the upswing in bankruptcy filings has been fairly modest.
Bankruptcy or debt consolidation, here are my numbers.
After handling about two thousand bankruptcy cases in San Diego, I can say pretty categorically that filing bankruptcy is almost always going to accomplish a result better than debt consolidation. By the time people come to a bankruptcy attorney they are usually in such financial trouble and debt consolidation will just prolong the problem. Financial problems that I see are like a cancer,they are very unwanted,the prognosis isn’t good,so sometimes the best solution is to just cut it out. I actually do provide debt settlement services where the financial problem is fixed . But debt consolidation, never it only prolongs the problem.
So why do these debt consolidation services exist?
It’s the old axiom of supply and demand. Plus, the service provider doesn’t have to be a lawyer. Which also means, by the way, they can’t really competently advise their customers as to whether and why bankruptcy may – and often is – a much better option. But people naturally want to avoid bankruptcy. What they don’t realize is that debt consolidation can actually hurt their credit worse and for longer than bankruptcy. Don’t believe it? Check out the published lending guidelines for FHA and VA mortgage loans: two years after the bankruptcy discharge, the borrower can get a mortgage loan on the same terms as those who never filed bankruptcy. I’m writing this in December, 2013. Two weeks ago, I had a client denied her reaffirmation on her car. Judge thought the interest rate was too high (well, yes; it was almost 25%) and she worried she would lose her car. Days later she got her bankruptcy discharge. Think she was shut out of the marketplace for buying another car? Far from it: when her existing lender played hardball refusing to lower her interest rate, she took advantage of one of the many credit offers she got and bought a different, newer vehicle at half the interest rate of the old one and simply gave the old car back to the lender, no strings attached. Sweet? You bet.
Borrowers who are attracted to debt consolidation have several things in common . The first is that they are lured into asking themselves the wrong question. Instead of asking the question, “To file or not to file?” (bankruptcy, that is), they are asking, “Should I try loan consolidation instead?” We would be foolish to underestimate the allure of a powerful message that promises the listener relief from shame. First, though, the debt consolidation industry must mislead its audience by insinuating that shame is an inevitable byproduct of bankruptcy to make their message meaningful. Is this an industry-wide problem? Regrettably, it seems to be.
While there are good people who work in the industry of debt consolidation, it is the industry itself that is so badly flawed. Well, I suspect that I speak for more folks than just myself when I tell you that I believe that many of these ads are misleading and that the services provided don’t live up to the hype. Too many do more harm than good. The industry is largely unregulated, and consumers have few remedies except to sue when they are misled or cheated. Debt consolidators will typically charge a sizable up-front fee for their services. No work is actually done until they are paid in full. Fair enough. But what’s happening while the borrower is shelling out hundreds or thousands of dollars to the “agency?” The bills aren’t getting paid, and the borrower’s credit goes further into the toilet.
So, when is debt consolidation a good idea When is bankruptcy a good idea?
My threshold determining factor is: Will the borrowers have a lower monthly payment over the next five years in their proposed debt consolidation than in bankruptcy (Chapter 13, that is)? If the answer is yes, they should consider debt consolidation. If they may be unable to qualify for Ch. 7 or 13 (i.e would have to be in a Ch. 11!) or for other reasons bankruptcy would have serious and unwelcome consequences like sacrificing property the borrowers own, they should consider debt consolidation. Disqualifying factors can be that the borrowers are over the debt limit for a Ch. 13. Yes, there is a debt limit for Ch. 13. Two limits, actually; one for secured debt and one for unsecured. [Chapter 7 has no debt limit.] Those are the two conditions under which I refer a potential bankruptcy client to a debt consolidator. Otherwise, typically a Ch. 7 bankruptcy gives the client a fresh start, and the problem can be solved years earlier than other options.
When you’re ready to end your bill problems once and for all, contact me call 619-235-9645 to set up a free, no-obligation meeting to talk about how I can help you.
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