When your financial situation has become challenging because of unanticipated medical bills, the loss of a job, a divorce or for any other reason, one of your first thoughts can be to seek protection under the bankruptcy laws. That may be your best option—a bankruptcy filing will afford you the immediate protection of the automatic stay, which prevents your creditors from calling, writing or taking any action to collect a debt. But there are alternatives that may accomplish the same objectives without the long-term impact of a bankruptcy filing and there are state and federal laws that give you some protection to keep creditors from harassing you about an unpaid debt.
Try to Negotiate a New Payment Arrangement with Your Creditors
A bankruptcy filing can be just as challenging for your creditor as it is for you. For that reason, your creditors may have an incentive to work out a payment plan. By negotiating a repayment plan, you can get some time to get back on your feet, and you may be able to keep late payments from appearing on your credit report.
However, before you do this, you MUST prepare a basic household budget, showing only the monthly cost of all basic living expenses (eg housing, food, utilities, auto expenses, medical care). This is one of the first things we do with new clients considering bankruptcy. If you do not have leftover money to pay your debts, your options are limited or non-existent.
And any settlement MUST be in writing. There are certain basic legalities and procedures here to make sure you have documentation of the settlement.
Seeking Help from aCredit Counseling Agency
A caveat—if you decide to try to use a credit counseling agency, only use one that is a well-respected non-profit organization. There are many unscrupulous individuals who bill themselves as “credit/debt managers or counselors.” A legitimate credit counselor will act on your behalf, looking closely at your budget and working with creditors to help you negotiate payments you can make, while still leaving you sufficient income to meet your basic needs.
Always be aware of the bankruptcy option, as a baseline for comparison.
We always encourage clients to at least learn what a bankruptcy involves, so that they have a basis for comparison with other options. We have seen far too many times where clients have made things worse trying to avoid bankruptcy.
Be aware of the tax consequences.
Although we are not tax advisers, you need to be aware that if you settle a debt which is not in dispute for less than the full amount due, you can be taxed on the amount which the lender writes off. This is not a problem where debts are discharged in bankruptcy. This can be an unpleasant surprise that could come as long as 3 years after the settlement.
Attorneys can help negotiate and settle debts and for some people this may be the best option
Anyone wanting to settle debts, who has the funds to do so, should at least consult with an attorney to review the issues and procedures even if they later decide to do it themselves.
Contact Neuner & Ventura, LLP
At Neuner & Ventura, LLP, weknow that getting relief from crushing debt can be intimidating and confusing. Weoffer a free initial consultation to every client. For an appointment, call our office at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.
Representing Clients across South Jersey
