Dealing with Debt and Bankruptcy: Top Five Things Every Consumer Should Know
If you’re dealing with debt, you’re not alone. Whether it’s student loans, credit card balances, health care bills, mortgages, or car payments, it’s important to keep calm and know that you have options.
Weltman shareholders Scott Fink and David Head recently participated in an Advance Ohio Expert Webinar Session where they answered consumers’ top questions about debt, bankruptcy, legal counsel options, and more. While you might be wondering why a consumer facing debt should listen to two attorneys representing creditors, it’s important to remember that both Scott and David have experienced many different situations throughout their years of work and understand that people need help navigating these complex situations. Ultimately, creditors, consumers, and legal counsel want the same thing – a resolution to the debt. They’re here to offer some useful advice and perspectives that can possibly make a hard situation a bit easier.
You can watch the complete webinar video here: Advance Ohio Expert Webinar Session. We’ve also listed the top five takeaways from this dynamic session.
1. Bankruptcy isn’t a magic bullet.
Bankruptcy does not wipe away all of your problems. It’s a complicated legal process and it can affect you, your finances, and your credit for the rest of your life. Before you file, consult an attorney with experience in this area, and carefully weigh your options before making any decisions.
2. Be honest about your situation.
Whether you’re just considering bankruptcy or in the process of filing, you need to be forthright about your debts, who you owe money to, and your current income situation. Do not lie or try to hide anything from your attorney or the court. Otherwise, the court can deem your debts are not dischargeable now, or in the future.
3. Weigh your options.
During the webinar, we provided a basic overview of the most common types of consumer bankruptcies – chapter 7 and chapter 13.
Chapter 7
- Pros: In a chapter 7 bankruptcy, most of your debts are completely discharged, with a few exceptions. The process takes roughly 120 days, so you can complete the process in a relatively short period of time.
- Cons: Nothing is free in life - or in a bankruptcy. When you file for chapter 7, you are turning over control of all of your assets (home(s), investments, cars, etc.) to an appointed trustee who has the power to gather and sell any property not protected by an exemption.
Chapter 13
- Pros: The biggest upside to a chapter 13 is that you get to keep your property. A chapter 13 is very structured, allowing for an adjustment of debts as long as you have a regular income. Through this chapter, you can pay debts over time, typically between three to five years, depending on your monthly income. Usually, you make a single monthly payment to an appointed chapter 13 trustee. The trustee then distributes those funds to your creditors through a court-approved plan. At the end of the repayment period, you will be cured of defaults on secured loans.
- Cons: During a chapter 13 bankruptcy, you need to work hard to keep up with your monthly payments. Your debts do not go away, and interest on your payments can still accrue over time, so it’s very important to avoid skipping or missing a payment.
For more information about the pros and cons of Chapters 7 and 13 bankruptcies, check out our latest blog: Your Top Chapter 7 & 13 Bankruptcy Questions, Answered
4. Beware of companies promising to reduce debts.
Just like everything else you see and hear on TV, the radio, or the internet, remember that things can be too good to be true. There is no magic wand to make debt go away.
Many of these debt settlement companies may ask you to default on current payment obligations, which is risky and can have long-term effects on your credit history despite the promise of short-term gain. Additionally, you may lose the ability to be the primary contact with your creditor. Many of these companies have a power of attorney within the contract which puts them in control of your situation. They often determine which of your debts to tackle first. However, the debt settlement company cannot prevent creditors from filing a suit against you or post-judgement executions.
If you are considering an offer from a debt settlement company, carefully read the terms of the contract and request assistance from an attorney. Make sure you understand what fees you are required to pay, how they are being paid, and what services the debt settlement company will provide.
5. You’re not alone.
There are millions of people who struggle with debt issues. Remember that you do have options to help you overcome the situation.
4. Beware of companies promising to reduce debts.
Just like everything else you see and hear on TV, the radio, or the internet, remember that things can be too good to be true. There is no magic wand to make debt go away.
Many of these debt settlement companies may ask you to default on current payment obligations, which is risky and can have long-term effects on your credit history despite the promise of short-term gain. Additionally, you may lose the ability to be the primary contact with your creditor. Many of these companies have a power of attorney within the contract which puts them in control of your situation. They often determine which of your debts to tackle first. However, the debt settlement company cannot prevent creditors from filing a suit against you or post-judgement executions.
If you are considering an offer from a debt settlement company, carefully read the terms of the contract and request assistance from an attorney. Make sure you understand what fees you are required to pay, how they are being paid, and what services the debt settlement company will provide.
5. You’re not alone.
There are millions of people who struggle with debt issues. Remember that you do have options to help you overcome the situation.
- Engage an attorney: Find legal counsel with experience in financial planning and/or bankruptcy. Ask friends or family members for a solid referral.
- Consider consumer credit counseling: Nonprofit organizations are out there to help consumers going through tough financial situations.
- Explore a trusteeship with municipal court: Check with your local municipal court to determine if they have created a trusteeship as authorized by the Ohio State Legislature. The municipal court will act as a trustee on your behalf and help you develop a plan to pay back creditors.
For more comprehensive insights, you can watch the complete webinar here. If you have additional questions that need to be answered, please contact Scott and/or David.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
