Hafemeyer Law

Dealing with Unsecured Debt

When financial difficulties arise, individuals often seek answers to help them with the mounting late fees, interest charges and harassing calls from creditors. A simple search on the web will bring up many different options. Some of these include debt consolidation companies, debt negotiation companies, and information on bankruptcy. There is a barrage of information available and often times discerning the best option can be difficult.

Debt consolidation companies are entities that attempt to help individuals by working with creditors to find a payment plan. First off, an account specialist will obtain detailed financial information from the debtor to determine what money is available in their budget to pay toward the debt. They will then work with creditors, typically credit card companies, to decrease the minimum monthly payment due on the account and gain a reduction in interest rates. These companies may charge a monthly fee to manage payments to the creditors and set a time frame for repayment of the debt in full. These programs can be a benefit by reducing interest rates, but not all companies follow through with what they promise, and some debtors have been left with outstanding debt even after making all the payments as required.

Debt negotiation companies promise to negotiate with creditors to settle debt for a lesser amount then the original balance. What debt negotiation companies may not disclose to their clients is that the amount of the reduction may have to be reported as income on the individual’s tax return for that calendar year which could increase tax liabilities. Also, the individual may be subject to judgments being filed against property through the courts during the negotiation process. 

Another option is bankruptcy. Bankruptcy is the area of the law that has been set up to give debtors a fresh start, essentially erasing debt and allowing individuals to start over. Chapter 7 bankruptcy is discharging (or forgiving) debts through a court process that requires disclosure of assets and liabilities. Individuals typically must qualify financially to be eligible for a discharge. Unlike debt consolidation, bankruptcy does not require debtors pay back debts that are discharged, and typically there is no requirement to add the discharged debt as income on the individual’s income taxes.

If you are facing financial difficult and would like assistance in determining the right decision for you, please contact my office to schedule a consultation.

Speak Your Mind

Tell us what you're thinking...

You must be logged in to post a comment.