Bankruptcy vs Settlement – Which is better?

Bankruptcy vs. Debt Settlement.There are several things to consider when you are trying to decide between bankruptcy vs. settlement. The first of which is whether your debt is secured or unsecured.

Unsecured Debt

Unsecured debt is money owed for medical bills, department store credit cards and regular credit cards. They’re not secured by an underlying asset or security. A good rule of thumb to distinguish between secured debt and unsecured debt is whether a creditor can take back any property to satisfy the debt.

If handled correctly, many times a creditor will accept 50% of the total amount or less to satisfy the outstanding balance — sometimes going as low as 25-30% of the outstanding balance. It all depends on the creditor or collection agency you’re dealing with and their individual policies and parameters.

Keep in mind that discounted lump sum settlement normally only apply to unsecured debts.

Secured Debt

Secured debt is money owed on a vehicle, home or other personal property that can be repossessed (or liened) to satisfy a past due amount.

In addition, child support, alimony and student loans can usually be treated as secured debt in most cases even though no property is attached. Reason being, child support, alimony and student loans are difficult, and in some cases impossible, to discharge in bankruptcy. For this reason, these debts are usually treated as a secured debt.

Bankruptcy As A Last Resort

Bankruptcy can remain on your credit report for up to 10 years. Bankruptcy is also a matter of public record for anyone that wants to know. For some people this is a big deal, for others it is not.

For those who work in a sector that requires a security clearance or background check, this could put their jobs in jeopardy.

Filing bankruptcy also requires that you appear in Federal Court for one or more hearings.

It has been found, however, that by far the biggest reason that people do not wish to file bankruptcy is a matter of personal responsibility. In other words, the moral obligation to repay the debt. Most people are good, decent and honest and want to do the right thing when possible.

The Truth About Credit Card Debt Settlement

It’s true that settlement can be a good alternative to bankruptcy, but here are a few things you should know:

1. Regardless of what people might tell you, it is usually going to take months to reach a settlement with your credit card company. In many cases, a credit card company will not offer much if any settlement until your account is at least 4-6 months past due.

2. Your credit score will get damaged. This is the trade-off for substantial debt relief without the need to file bankruptcy.

3. You will continue to receive collection calls. Unfortunately this is a by-product of going through the debt settlement process. However, it’s not the end of the world and it will usually only be for a few months of your life.

Lastly, you can take the do-it-yourself approach to debt settlement or you can hire an experienced firm to assist you. People have achieved very good results with each method. It all depends on your negotiation skills, time available for this project as well as your comfort level in talking with debt collectors.

For more information on this topic, please visit:

http://www.hoffmanbrinker.com/faq-debt-settlement.html

http://www.hoffmanbrinker.com/videos

Telemarketing Sales Rule (TSR) To Regulate Debt Settlement Companies

Telemarketing Sales Rule (TSR) To Regulate Debt Settlement Companies

On Oct. 27, 2010, a new law called the Telemarketing Sales Rule (TSR) becomes active. This rule is designed to keep debt settlement companies from charging exorbitant upfront fees for their services. In addition, this rule will make debt settlement companies wait until a debt has actually been settled before they can collect their fees.

The TSR will also require that debt settlement companies offer full disclosure to clients seeking help. For example, they must inform prospective clients that they will continue to receive collection calls during the process,  and that no specific results are guaranteed and that the client’s credit report will be adversely affected.

Certain debt settlement companies will also need to clean up their advertising as well. No longer can they advertise that they routinely settle debts for pennies on the dollar. I’m sure you’ve seen these misleading ads on TV, radio and in magazines.

Why This Law Was Needed

With the difficult economy of the past few years, many people found themselves facing serious financial difficulties for the first time in their lives. I’m talking about good, honest, decent people not being able to meet their financial commitments. My phone consultations with these folks often began with, “Mark, I never thought in a million years that I would not be able to pay my bills … “.

Many people ran out of options, felt hopeless, and felt they needed a lifeline. Sadly, some companies exploited the misfortune of others and created debt settlement “programs” that grossly overstated the results that could be achieved. Thankfully, not all debt settlement companies are like this, and many do provide a legitimate service for a reasonable fee. However, enough people were harmed by unscrupulous debt settlement companies that it warranted the creation of this new law.

A Good Law For Consumers

I usually feel that the government should leave people’s personal financial issues alone. But in this instance I agree with this law because too many desperate people were being taken advantage of. Now under the TSR, debt settlement companies will either have to be honest or leave the industry.

I’ve worked in this industry since 1995 and there are plenty of reputable debt relief firms that provide valuable services at reasonable rates. People experiencing financial difficulty deserve the option to get professional help, but they don’t deserve being ripped off or mislead. In time, I believe this law will clean up the industry and ultimately be a good thing for consumers.

For more information on services provided by reputable firms, please click here

Credit Repair After The Credit Card Debt Settlement Process Is Complete

Steps You Can Take For Credit RepairA question that I’ve gotten over and over is, “Is there any way to repair my credit after I complete the debt settlement process?” Actually, there is.

However, before proceeding we need to be in agreement on one thing. That is, there is no quick fix to restoring your credit report.

If you just settled your outstanding credit card balances for less than full balance, you have to remember that there is a trade-off for receiving substantial debt relief without filing bankruptcy. And that trade-off is that your credit report is going to get dinged. That’s just how things work. There’s no way of getting around it. Every client that I’ve ever worked with understood this before they began the debt settlement process.

In the unfortunate event that no one told you that your credit report would be adversely affected, I’m sorry about that. But all is not lost. Let’s now discuss your options moving forward.

The Fair Credit Reporting Act

Regarding your credit score, the Fair Credit Reporting Act (FCRA) clearly states that the maximum amount of time that a derogatory item may stay on a person’s credit report is 7 years. But it does not say that it *must* remain for 7 years. Only a *maximum* of 7 years.

So here are your options:

A. Do nothing, and your credit report will gradually recover on it’s own in time … worst case scenario >> 7 years.

B. Be proactive and take steps to try and clean up your credit report sooner rather than later. Based on feedback from my clients over the years, they often report that with a little effort they’ve sees their credit score return to a respectable level within 2-3 years, sometimes sooner.

If you choose option B, you can take the do-it-yourself approach or you can just pay a reputable firm to do this for you.

Getting It Done

Now, I’m all about saving money and I’m not afraid to roll up my sleeves and get my hands dirty. But when it comes to trying to clean up your credit report, I usually encourage people to just pay a reputable credit repair service firm to do this task for them because the credit repair process is very meticulous and time-consuming (translation: an exercise in wading through bureaucracy).

Here is the firm that I have been referring my clients to for years >> www.lexingtonlaw.com

They’ve been around since 1991, they’re very affordable, they really are a law firm and they usually produce good results. They’ve got the credit repair process worked out to a science, and in my opinion they can perform this task much more efficiently and effectively than you or I could on our own.

That’s my 2 cents on how to go about credit repair.

For more information on the FCRA:

www.ftc.gov/os/statutes/031224fcra.pdf

Additional resources:

Consolidate Credit Card Debt

Bankruptcy FAQs

bankruptcyNo one ever wants to file bankruptcy, that’s for sure. But if you’re having financial difficulties you owe it to yourself to educate yourself on the basics of bankruptcy because it might just end up being the best solution for you afterall.

Today I ran across an excellent resource that answers virtually any question you would want answered on the topic of personal bankruptcy. Some of the most common questions people have about bankruptcy are:

Here’s the link:

http://www.acclaimlegalservices.com/faqs

It’s entirely possible that you won’t need to file bankruptcy to solve your financial predicament. But before making your final decision I believe it’s wise to at least explore all of your options before proceeding.

Cross-Collaterization: Yes, They Really Can Take Your Money

Cross-CollateralizationYesterday I got a call from someone saying that his credit card company just went into his checking account and cleaned him out. They took his money and gave no advance warning. He was flabbergasted and wanted to know if this was legal.

As much as I hate to say it, the answer is yes.

However, don’t get worried that you immediately have to move all of your money to a Swiss bank account. The circumstance that allowed this person’s credit card company to just go into his checking account with no prior warning is a somewhat unique situation that will probably not apply to most people. Let me explain.

What allowed the credit card company to just go into this person’s checking account is something called cross-collateralization. It means that if you have money in a checking or savings account and you have a credit card with that same bank then the bank can go into your checking account to satisfy a past due balance on your credit card because your checking account and credit card are under the “same roof”, so to speak. In other words, the money in your checking account is serving as collateral on your unpaid credit card balance.

HERE’S AN EXAMPLE

Let’s say you have two credit cards, one with Wells Fargo and one with Bank Of America. And let’s say you also have a checking account with Wells Fargo.

Now let’s say you lose your job and you are unable to make your monthly credit card payments to Wells Fargo and Bank Of America. Because you have a checking account with Wells Fargo, Wells Fargo could then automatically go into your checking account and help themselves to your money to satisfy the past due balance on your Wells Fargo credit card. Bank Of America, in this example, would not be able to touch the money in your Wells Fargo checking account.

It’s important to note that the bank would only go into your checking account and take your money if you had a *past due balance* on your credit card. If you’re current, you have nothing to worry about.

Now you know.

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