Credit Card Debt Relief

Bankruptcy Basics

2011-07-07T10:06:00.000-07:00

Bankruptcy is a very powerful debt relief option. In this post I will briefly discuss about what bankruptcy is. Whether you should file for bankruptcy or not is too broad of a topic to cover in this post.

There are several different chapters of bankruptcy, however most consumers will generally file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

A Ch. 7 Bankruptcy, also commonly known as a liquidation bankruptcy, is where all of your non protected assets are sold and used to repay your creditors. Often, nearly 95% of the cases filed in our office, all assets can be protected. In other words, your debt is discharged (you don't owe the debt anymore) and you get to keep all of your assets.

A Ch. 13 Bankruptcy, also known as a repayment plan bankruptcy, is where they look at your income and expenses. Your disposable income will be paid to the trustee on a monthly basis and the trustee will make payments to your creditors for approximately 3-5 years. If you sucessfully make all the payments your debt will once again be discharged.

Although you may file a bankruptcy petition yourself, I would highly recommend speaking with an attorney first.

Debt Settlement Companies

2011-07-06T16:46:00.000-07:00

Nowadays, there are debt settlement companies claiming that they will be able to help you settle your outstanding debt. However, one should be very careful, as there are many debt settlement scams. Although it is not necessary to hire an attorney, I would only recommend a debt settlement company if it is a law firm or if the company has an in-house attorney.

This has many advantages and disadvantages, which I will go over later in this post.
If you decided that you can not afford to pay off your debt, and would like to negotiate a settlement, hiring a third party may be beneficial to you. When going in for a consultation, I would recommend that you take a look at previous settlements they have achieved. If they are unwilling or unable to show some of the work they have done, I would stay away. Also, be very wary if they can guarantee an offer. They may be able to let you know what is typical, however there is no way that they can guarantee any amount. Last but not least, they should ask where or how you will be obtaining the funds to settle the account. If not, they are probably there just to take your money. At the law firm that I work at, we always check to see if the client would be able to afford settling the accounts. If not, they are wasting their time and money as they would not be able to settle.

One of the advantages of hiring a third party company or law firm is that you do not have to deal with the collectors. I know first hand how much of a jerk they can be. This may not seem like a big issue, but when you are receiving 30 plus calls a day, it can become very stressful. If you hire an attorney to do the settling for you, the collection agencies can no longer legally contact you, they must contact the attorney (for consumer debts). However, the original creditor may still contact you. Unfortunately, this not apply to business debts. The collection agengies may contact you if your debt was primarily used for business expenses. On a side note, if you live in California, you are protected even more and not even the original creditors may contact you. Other states may have similar laws, but I am unfamiliar with other states. If for some reason, the collection agency contacts you after being made aware of your attorney, you may sue them for violating FDCPA (Federal Debt Collection Practices Act) laws. It will be $1000 per offence and they will need to pay your attorney's fees.

Another advantage of hiring someone to settle your debt, is they may have contacts with the collection agencies. Many build a relationship with employees at certain collection agencies and are able to get great deals for you. Even if they do not have a contact at particular collection agency, they have the experience and know how to negotiate with the collectors.

Finally, if you happened to get sued over your debt, an attorney will be there to assist you with all of the pre-trial paper work ( answer, discoveries, cmc statement, etc) and even a trial if the lawsuit goes that far.

On the other hand there are downsides to hiring someone else to do the negotiating for you. Most people fell behind on their payments because they could no longer afford to pay their bills. Paying someone to settle your debts just adds an additional cost. From my experience, most people should be able to settle their own debts for about 50-70% off, depending on how good of a negotiator you are.

Another disadvatange is that your debt is just one of many accounts that the company has to work on. If you were working on it yourself, you should be on top of all the negotiating and will know exactly what is going on. Many debt settlment companies may leave you in the dark as far as the progress of the settlement. Also, there is the small chance that they are so busy that your accounts are not negotiated on for a long time.

I would say that if your debt is relatively small, less than $10,000, you should seriously consider negotiating the debt yourself.

Ultimately, is your decision to use a debt settlement company or not. Before deciding, I would recommend taking a look at how much time you can commit to negotiating, how good your negotiating skills are, and how much it would cost to hire someone.

Pay Off Debt

2011-06-22T08:00:00.000-07:00

For those that would like to pay of the debt as opposed to settling or filing bankruptcy, I would follow the advice of Financial guru Dave Ramsey. With his debt payoff plan, you will start off with creating a "rainy day" fund. Start off by paying just the minimum on your credit cards, and start saving money until you have about $1500-$5000 saved up. The amount you would like to save up is up to you.

Once you accomplished your goal of saving up for a rainy day, it's time to start tackling your debt. Organize all your debts starting with the smallest balance to the largest. For most households, one's credit cards will be the smallest debts and the mortgage will be the largest. Continue making minimum payments on all the debt except the smallest. On your smallest debt, agressively pay off as much as possible until it is completely paid off. After paying off the smallest debt, move on to the next smallest until all of your debt is paid off. If it will help you to get motivated, give yourself a reward each time a new debt is paid off. Maybe a nice dinner at your favorite restraunt, a nice shirt, a video game, or a nice vacation. Think of it as gold at the end of a rainbow.

Now, some people will say that this isn't the best way to pay off the debt. The fastest way to pay off the debt is to start paying off the highest interest rate credit card first. Well, that is mathematically correct. However, we are not dealing with math here. We are dealing with human habits and emotions. The problem with this line of thinking is that it is hard for people continue paying off their debts with out seeing results. If you start off tackling the smallest debt first, it is much easier to achieve that first milestone. It feels good to take care of the debt and want to continue. Once that happens, it's like a snowball effect and the debt just starts melting away.

In general, this is just very good financial advice. Slowly get yourself out of debt and start building wealth. Just imagine what you can do with the spare disposable income.

Credit Card Debt Settlement

2011-06-21T13:01:00.000-07:00

When I first heard about credit card debt settlement, I was very skeptical. I wondered why the banks would even settle the accounts for less than what is owed. After working at the bankruptcy firm, I learned that many banks (original creditors) are not only willing to settle out the debt, but actually prefer to settle out the debt, before the client files for a bankrupcty.

Once the borrower defaults on the debt, the creditor would like to collect all of the money due to them. However, this isn't feasible in all cases. Often, the borrowers are going through financial hardships, such as a loss of job, that prevent them from re-paying back the credit cards. Other times, the clients just overextended themselves with credit cards, and it became too difficult to even make minimum payments.

In these cases, the creditor would like to collect as much and as soon as possible. Sometimes the debt can be settled for as low as $0.10 on the dollar. In fact, our law firm settles credit card debt on average of $0.20 on the dollar. Now the acutal percentage of discount you will be able to get per credit card account will vary on several things. The biggest factor that I've found is who the original creditor is. Along with your financial information, such as income, assets, and debts.

From my experience, Bank of America and American Express are the two original creditors that will offer the lowest rates. Chase is another original creditor that offers fairly good rates, but they are also one of the quickest to file a lawsuit.

The two most difficult original creditors to settle are Capital One and Wells Fargo. It is very difficult to settle these accounts when they are still with the original creditor and often have to wait until they are sold or assigned to a collection agency.

To settle credit card debt, you need to be able to negotiate with the collectors. Most, if not all collectors are paid on commision, so they actually want to settle the debt. They would like to collect as much as possible, so their commision paychecks are larger. However, if you can convince them that you only have a small amount and that that will be all they are going to be able to collect, you have a good chance of getting a good settlement offer.

Once you come to terms on a settlement you both can agree upon, ask for the offer in writing. Most collectors will not email the offer to you, but they will fax or snail mail the settlement offer to you. The settlement offer letter will detail the terms of the settlement. The infomation you will want to make sure are on their is the following:
1) Your name.
2) The original creditor.
3) The original account number (some banks change the account number when assigning to a collection agency)
4) Balance
5)Settlement offer amount with due dates.
6) Verbiage stating that the account is "paid in full", "Settled in full", "Settled as agreed", "Settled for less".

Once you have that letter and make the appropiate payments by the due dates, the debt is resolved and you no longer have any obligations in regards to that debt.

If you would like to hire some one to settle your debt for you, check out the post on debt settlement companies where is list some advantages and disadvantages.

Please leave comments if you have any questions or would like more information. I might answer your questions directly in the comments or create new post if it is a complex question.

Credit Card Debt Relief Introduction

2011-06-20T10:22:00.000-07:00

A little about myself. I am a paralegal for a Bankruptcy Law Firm, that focuses on debt relief. However, our firm differs from many, if not most bankruptcy firms. The head attorney feels most people do not need to file bankruptcy, and that there are other means of getting rid of ones debt. Specifically, if a person has only credit card debt, our stance is that the client should almost never file for bankruptcy.
Eventually, I would like to see everyone reach financial freedom by getting rid of debt for good and staying debt free.

In the upcoming posts, I will cover a wide range of subjects. Obviously, I will talk about ways to get rid of credit card debt such as, settling credit cards, filing bankruptcy, and debt consolidation. However, I will also go over financial management, how to find a job, and loan modifications.