Contact Raymond Gessel or
Brian Hanis if you have a question regarding Bankruptcy.
Debt
Reorganization and the Misconceptions Surrounding Bankruptcy [reprint]
Watching
television you are bound to see various advertisements for different
products and services ranging from fast food to hair transplants,
and included in this sales onslaught will eventually be an offer for
“debt relief.” Many so-called non-profit companies are now offering
debt relief for credit cards and other bills claiming that they can
lower interest rates, control late fees, and consolidate monthly payments
to provide assistance to people who must pay more than their monthly
income can afford. Millions of people have turned to these companies
for help in controlling their bills, but how much help are they really
providing?
One must wonder why these companies want so desperately
to assist people in stabilizing their debts, when they themselves
supposedly receive nothing in return. Are they really so interested
in seeing a debt-free world, or are there other interests at work
here? Just remember, you cannot get something for nothing, and
companies would not exist if they were not gaining anything, so one
must be very skeptical of their motives. Although separate organizations
from credit card companies, many of these debt consolidation companies
work directly with credit card companies in order to get you lower
percentage rates. This symbiotic relationship exists largely
because the credit card companies will be able to recover both their
principal amount and also some of their interest; therefore, it is
in their best interest to maintain and support these debt consolidation
companies.
Every day I have someone come into my office who has previously
trusted one of these companies to provide a viable solution to their
debt woes, but who now must declare bankruptcy because the “service”
they were offered was not what they got. Many clients come to
me after a year or two of making payments to these companies and finding
that, much to their chagrin, they have not lowered any of their principal
debt, but rather the payments were only enough to cover the interest
rates that the companies themselves determined, and to the late fees
that occur due to the payment schedule established by the debt reorganization
company. Therefore, when I do have a client who is involved
within these programs, I must first advise them to monitor their service
closely and to continuously request updated balance numbers from,
not only their debt reorganization service, but also directly from
their credit card companies themselves to safeguard their interests
as closely as possible to ensure that payments are being distributed
in the proper manner.
Many times, participation in these types of
programs leads to something that is rarely spoken of and has many
misconceptions associated with it…the dreaded BANKRUPTCY. Many
people believe that bankruptcy will ruin your credit and your financial
stability forever, but let me tell you about a friend of mine.
My
friend, John, went through a marital separation involving a house
and various other bits of property that left him with numerous debts.
John had a great job and made a decent living; however, he was finding
it impossible to keep up with the debt that he was left with.
John came to me and decided to declare bankruptcy. Soon after
the filing of his bankruptcy he was surprised to see that not only
was he getting credit card offers but he was also getting numerous
financing offers for new houses and cars. He asked me why, and here
is what I told him…
Many credit companies that extend financing know
when a person has declared bankruptcy. They also know that,
directly after declaring bankruptcy, you suddenly have little or no
large debts and that you cannot declare bankruptcy for another seven
years. Any new debt that you incur after filing bankruptcy must
be paid or your wages will be garnished because, for seven years,
you have no other way of erasing the debt without paying it; obviously
a very attractive prospect for lenders. Therefore, in a sense,
those who declare bankruptcy find it fairly east to get new credit.
Overall,
there are many misconceptions regarding debt relief and the available
remedies for financial distress. While there is no single solution
that will work for everyone in every situation, there are many options
available to people seeking assistance. If you are in a situation
that has become overwhelming and unmanageable, it might be beneficial
to consult an attorney. Most will review your debt situation
with you in a free consultation and inform you as to what options
are viable for your particular situation.
However, the danger
in this is that many people who are suddenly bombarded with new credit
offers come full circle and create new debts that they are, again,
unable to pay. My point is that bankruptcy is no longer the
taboo process that it once was, and declaring bankruptcy does not
mean that your entire financial future is destroyed, but my advice
to those who declare bankruptcy and then consider taking out new lines
of credit is to think very seriously about it and make sure you have
adequate funds to pay any line of credit before accepting it.
As the
above story illustrates, many of the misconceptions regarding bankruptcy
are unfounded; however, this may be because many people do not understand
the process, particularly in regard to the different chapters of bankruptcy
that are available and which categories they may be eligible for.
The following provides a brief description of a few of the more common
chapters of bankruptcy:
The most common chapter within bankruptcy
protection is a Chapter 7 liquidation bankruptcy. Chapter 7
is most commonly used for individuals who do not have an adequate
income to pay off their debt. Under a Chapter 7 petition, an
individual is allowed to take exemptions, protecting some property
from the creditors' liquidation. Some items that may be exempted
include houses, cars and personal property. Under a Chapter 7 the
majority of your debt is discharged and you are able to start anew.
The Chapter 13 category is also a personal bankruptcy, but one in
which you repay a certain percentage of your debts depending on your
available income after your necessities have been paid. This
is calculated through careful planning and also includes exemptions
that persons may or may not be eligible for. A Chapter 13 is
also a very viable option to those who have a house and are behind
in their payments as they may be able to add the payments to the “plan”
as well as any arrears. Payments made in the Chapter 13 process
go directly to the trustee who then distributes your money to the
creditors.
A Chapter 11 bankruptcy is most commonly used for a business
that is having financial struggles. The goal of the Chapter
11 is to reorganize the financial situation so that the business can
possibly operate and hopefully become profitable again while paying
some of its debts. This is probably the Chapter of bankruptcy
most people hear about on the news as large companies tend to commonly
use it for protection of their affairs.
For more information regarding
the options that are vailable to you, or to set up a consultation,
please contact Raymond Gessel or Brian Hanis.
