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Alternatives To Bankruptcy...
The Real Story.
Links To Related Topics:
Alternatives To Bankruptcy
(The topic covered on this page.)
Chapter 13 Compared To Traditional Debt Consolidations
Other Ways To Deal With Debt - The Downside
Know The Difference: Scams, Credit Counseling &
Bankruptcy
=============////////////////////==============
Specific Alternatives To Bankruptcy:
1.
Budgeting The Money You Have.
2.
Get More Income.
3.
Consolidate Bills With Another Loan Or Mortgage.
4.
Credit Counseling Plans: Top 11 Things You Need To Know.
BUDGETING
:
BEING MORE CAREFUL WITH THE MONEY YOU HAVE.
It's all about income and expenses....making do with the
income you have and keeping your expenses as
low as possible. The first step in dealing
with mounting debt is to try to stop spending
and to avoid borrowing more money. The next
step is to sit down and work up a
budget...which is nothing more than putting
pencil to paper to figure out what you have to
spend and where you need to spend it. This is
the hardest thing to get anyone to do. Why?
Because it's no fun....no fun whatsoever.
Budgeting puts us face to face with reality
and that can be painful. In my experience....
people would rather do almost anything else...
rather than sit down and work up a budget....
but working up a budget is where it's at....
and the only way to really find out where your
money is actually going. Most people are
flabbergasted at how much of their money is
flitted away on things they want...as opposed
to things they need.
The reward of budgeting is that you may be
able to find your problem and fix it.
GET MORE INCOME
:
You have finished your budget. You have separated out
what is needed from what you want. You have
done everything in your power to lower your
expenses and you have disciplined yourself to
live on less. However....you don't want to
give up the house or the nice apartment or the
nice car....and you don't want to move your
kids out of the good school district...and you
don't want to drastically change your
lifestyle. You are willing to cut back here
and there....but not as to those things. You
don't want to have to make do with a lot less.
You have worked hard and want to keep the
things you have. You don't want to disappoint
your spouse or your kids. But....uh oh....your
expenses still exceed your income. What do you
do?
Get more income...if you can....and fast. What
does this mean? It may mean changing jobs.
It may mean going back to school...if you
have the time... to get more training so you
can get a higher paying job. Most likely....if
you are already over your head in debt...it
means getting a second job...or making your
job-age kids get out and work. It may mean
trying to get some overtime at work. It
probably does not mean sending your spouse to
work because....these days....most of the
spouses are already out working.
CONSOLIDATE BILLS
:
BY GETTING ANOTHER LOAN OR MORTGAGE (OR REFINANCING
THE MORTGAGE YOU HAVE)
O.K.....at this point....you have done all the budgeting
you can stand...and you are working as hard as
possible...but you can't work any harder....or
you are getting real tired out working as hard
as you have...or you have lost a job...or you
are working hard, but never seeing your
family. But...still ....there is not enough
income coming in to pay all the bills. What do
you do?
At this
point.....and usually before this
point....people will start borrowing more
money...to stay current....but this is a trap.
This is called the "Borrow from Peter to
pay Paul" stage. However, unless you have
a good, workable, solid plan where you can
afford to repay the extra money you
borrow....you are just buying time...putting
off to tomorrow the problem you have today.
And....you may be just making things a lot
worse....for you and your family. Loans are
not free. For every dollar you borrow....you
have to pay back that dollar...plus
interest. Oh...that interest.
Interest...that's the killer. Making you pay
interest is what lenders are all about. Making
you pay interest and interest and interest is
how all those lenders make the money to feed
their families. Their families will get
fed....even if your family does not.
If you don't absorb anything else...absorb this.
Nobody ever got out of debt by borrowing more money.
Borrowing more money only makes sense if you
know....or can reasonably predict....that you
will have more money coming in now.....or real
soon. No doubt....good, hard-working
people.....just like you....always mean well
when they borrow more money. You borrow more
money because you hold out hope.....hope that
the future will be better than the present.
Hope is a funny thing. We all need hope...but
hope can make us do.....in hindsight....some
really foolish things.
There are risks. For example...when you take out a
second mortgage on your home to pay credit
cards and other bills, you are putting your
home at risk. Why? Because you are putting
your home up as collateral....in case you
cannot pay... and when you cannot pay....the
lender takes your home.
Also...offering up your home as collateral
generally means you are taking what was a
short-term problem and turning it into a
long-term problem. Why? Think about it. The
only reason the second or third mortgage has a
cheaper monthly payment is because you are replacing a
short-term obligation with a long-term
obligation. Most of these mortgages keep you on
the hook for 15 to 30 years...in many cases,
well past the time when you expect to retire.
When you take out a mortgage to pay off
unsecured credit cards and other bills, you
are getting short-term gain, at the expense of
long-term pain. You are tying up for 15 to 30
years, income....in most cases....desperately
needed to take care of you and your family.
Should you do it? Should you continue to "borrow
from Peter to pay Paul". Only you can make
that decision...but the decision you make
carries a lot of risk and can hold you and
your family hostage for many precious years to
come. The real problem comes later when there
is no more money to borrow from "Peter", and you
can't pay "Paul". This is when your whole
house of cards comes tumbling down. And if
"Paul" is holding a mortgage on your home, Paul
starts foreclosure to put your home up for sale.
Here's the important question: You only
have just so many good, income-producing
years. Do you really want to spend the best
years of your life in debt?
CREDIT COUNSELING PLANS
:
TOP 11 THINGS YOU SHOULD KNOW!
1. Credit Counseling: What Are They? What Do They Do?
What are Credit Counseling Agencies? Very
simply....in most cases....they are basically
collection agencies working for and....in
effect...controlled by the credit card
companies. We'll explain this more below.
What can they do for me? At most....they will
help you lower your interest rates a little,
and then usually only with respect to credit
cards....and then, only with respect to credit
cards with companies that are willing to
participate. If what you really need is to get
rid of some debt....Credit Counseling Agencies
are of no use whatsoever. Only bankruptcy
can actually get rid of debt. Is it any
wonder that credit counseling agencies hate
bankruptcy. They work for the credit card
companies....and the credit card companies
know that the one thing that can
"unhook" you from their control is
bankruptcy.
That said....if you can't pay all your
bills....and want to consider a credit
counseling plan...the second best advice
I can give is to first check out how
bankruptcy works and what it will do for your
family. You will be totally surprised.
Bankruptcy is so much better than credit
counseling, but if you don't take the time to
check out bankruptcy before you sign up for a
credit counseling payment plan, you will never
know....until it's too late. And you can find
out for FREE about bankruptcy. Any bankruptcy
law firm worth its salt offers a FREE INITIAL
CONSULTATION.
The best advice I can give you is to
never put your good money into the hands of
any of these organizations. Why? Because you
chances of success with credit counseling are
slim to none.
Some of these organizations seem to be
legitimate "non-for-profit"
businesses, dedicated to helping people. These
are called credit counseling organizations.
The more legitimate ones set their customers
up on repayment plans which at least lower
interest rates somewhat on certain
debts...usually just credit cards.
2. Credit Counseling: Many Are Scams:
However, many, if not most, of the
organizations that run ads on TV, and
especially on the Internet, are simply scams
organizations, especially the ones that offer
to make people "debt free" without
payments and without filing bankruptcy. Their
goal...pure and simple....is to sucker
innocent people into sending them money. The
sad thing is that people actually fall for
these scams and....as a result....a lot of
good, honest, hard-working....but not
street-wise....people end up sending in a lot of
hard-earned money and get absolutely nothing
in return...except the sinking feeling of having
gotten "suckered" and the heartache
of losing hundreds or thousands of hard-earned
dollars that could have been used to take care
of their families. It just makes me sick and I
just hate it for these families.
The bottom line: There is no truer saying
than...."If it sounds too good to be
true....it is".
Unfortunately, there is very little...if
anything.... in the form of State or Federal
regulation to oversee and protect the public
against these scams and there is no
easy way for the public to separate the scams
from the possible non-scams.
And to make things worse....there are
so-called "credit counseling
agencies", "debt management
organizations", and the like, that merely
pretend to be legitimate credit counseling
agencies....organizations that....once
again.......merely sucker money out of people.
One of the big ones is Ameridebt, which has
been sued by one or more States'
Attorney General. Why? For one reason because,
although Ameridebt held itself out as being a
non-for-profit organization...it was anything
but. For instance, it is alleged that this
organization illegally absconded with its
customer's full first payment, money that
should have be applied toward payment of the
customer's bills.
3. Credit Counseling: The False "Non-Profit" Pitch:
One of the hooks used by these organizations
is their representation that they are
"not-for-profit". The truth is that
any organization can make itself look like it
makes no profit by simply paying huge salaries
to its officers and other employees... or by
paying inflated costs out to affiliated
"for profit" companies.
4. Credit Counseling: The Misleading "SAVE 60% IN JUST
SECONDS" Pitch:
Many, if not most, of the Credit Counseling
outfits will get your attention saying things
like this. First off, they are only
talking about credit card accounts, and then
only with respect to those credit card companies
that have agreed to play ball with them.
Second and more importantly, however, is the
fact that this pitch sounds like they are
getting rid of some of your debt. This is
NOT true. At most, they can lower the
interest rate on a few credit cards. You
still have to pay the whole debt, plus plenty of
interest. And this is the main distinction
between what credit counseling and what filing
bankruptcy can do. In most cases,
filing bankruptcy, especially under Chapter 7,
gets rid of ALL the interest and also ALL the
debt.
Want to hear out more about their misleading ads?
(Click Here)
5. Credit Counseling: At Best, They Are "Bill Collectors",
Working For & Controlled By Credit
Card Companies:
And, even the true "non-scam" credit
counseling operations are really just
collection agencies for the credit card
companies. The way it works is this. Certain
credit card companies agree to lower their
interest rates somewhat in exchange for
agreeing to accept regular monthly payments on
a repayment plan set up for a period of years
by one of these credit counseling outfits. Why
do the credit card companies agree to this? In
major part...the purpose is to keep would-be customers out
of the hands of bankruptcy attorneys. Why?
Because bankruptcy attorneys don't just lower
interest rates...bankruptcy attorneys make the
credit card companies pay for their loose and
risky lending practices, practices that leave good,
honest, hard working people with more debt
than they can pay. Bankruptcy attorneys use
the bankruptcy laws to actually get people out
of debt...and when you get rid of debt...you
not only get rid of the debt...you also get
rid of the entire obligation to pay interest
on that debt.
Is it any wonder the credit companies hate
bankruptcy and love there
"legitimate" credit counseling
organizations. At least with credit counseling
repayment plans, the credit card companies
have a shot at getting all their money
back...plus some interest. That's
better than the customer filing bankruptcy
and the credit card companies getting
nothing. In fact....I have been told...more
than once...that...because bankruptcy is so
powerful and such a threat to them....many
legitimate credit counseling agencies are not
even allowed to mention or discuss bankruptcy.
Understanding all this...is it any wonder that
these credit counseling places "bad
mouth" bankruptcy. Bankruptcy does what
credit counseling agencies can only dream
about doing for their customers.
6. Point By Point - Bankruptcy versus Credit Counseling:
Let's get more specific. Let's show you how
Credit Counseling stacks up against
Bankruptcy. Here are just a few of the things
bankruptcy can do that credit counseling
cannot.....
-
Bankruptcy can stop wage garnishments AND Bankruptcy
can get rid of Federal and State income
tax debt.
Bankruptcy can put the IRS and State
tax agencies under control, stopping wage
garnishments and tax levies
....and.....bankruptcy can actually get
rid of significant Federal and State
income taxes (as long as you qualify under
4 simple rules),
Credit Counseling can't do a thing.
Credit Counseling has no power at all over
Federal or State income tax agencies.
-
Bankruptcy is a Federal law and has the full weight
of the U.S. Federal government behind it.
Credit Counseling is controlled by the credit
card companies, who can change the rules
of the game anytime they want.
-
Bankruptcy is an established system of law,
procedures and regulations, created to
protect you. The Bankruptcy system is run
by Judges and lawyers licensed to practice
and closely policed by State Bar licensing
boards.
Credit Counseling: This industry is
completely unregulated, with no one to
protect you at all. Is it any wonder so
many people get scammed out of their
hard-earned money by so many of these
organizations. But...Don't take our word
for it. Read about the abuses for
yourself. See the reports referred to
below.
-
The Bankruptcy version of "bill
consolidation"....which is called
Chapter 13.... is closely regulated to
make sure that you can afford to make the
payments. It also puts the full authority
of the Bankruptcy Court to work for you to
make sure you are not taken advantage of.
Credit Counseling
:
Credit Counselors will put you into a payment plan
....even if you can't afford it. Why? Because if they
checked your budget....you would
know...right off the bat....that you can't
afford their plans....and that means you
would look elsewhere for help. So what's
the harm of agreeing to pay a credit
counseling repayment plan you can't
afford? Think about it. If you can't
afford to pay the plan payments, you won't
complete the credit counseling payment
plan, and if you don't complete the
payment plan, your hard-earned money will
be wasted, your family will be even worse
off, and worst of all, the credit card
companies will go back and add on all the
interest, late fees and over-the-limit
penalties, as if you never signed up for
the credit counseling plan. In other
words, for lack of a better term, you and
your family get "screwed. You lose,
but the credit card companies that control
the credit counseling agencies
win....because every month they keep you
paying and out of the hands of a
bankruptcy attorney is a month they make
money off you.
The bottom line: Instead of telling
people how bankruptcy really works....and all
the good things that can come from filing
bankruptcy......the credit counseling outfits
are forced to feed off the "stigma"
that most people attach to bankruptcy.
7. Credit Counseling: Putting People Into
Plans People
Cannot Afford:
And even worse, the public gets sucked into
repayment plans that....in my
experience...they generally cannot
afford...spending hundreds of dollars a month
on credit counseling repayment
plans....repayment plans which suck away
money desperately needed to take care of and
support their families....repayment plans
which virtually guarantee that....in the final
analysis...the only option left will be
bankruptcy.
You might ask why credit
counseling places don't spend more time making
sure that the would-be customer can afford the
plan. The answer is three-fold. First...from my
experience as a bankruptcy attorney, because
most people have not been taught how to budget
and because hope runs eternal in most people.
Telling someone that you can reduce, say $800 a
month, down to $600 is very seductive,
and....in my experience, most people....when
asked whether they can afford the $600 per
month (in my example) will naturally say
"yes" without ever putting pen to
paper to work out the numbers.
Any savings is better than none...right.
Second.....because working up an actual budget
of necessary monthly income and expenses it
just that ...work and it takes time and
effort. Third....because taking the time
to work up an actual budget of necessary
monthly income and expenses would reveal the
ugly truth...the ugly truth being that
most of their would-be customers really need
to lower their monthly expenses a whole lot
more than the credit counseling agencies can possibly
offer.
How do we know? Because, in our office, time
and again, we see people who have fallen out
of these plans...people who found out ...the
hard way....that they could not afford the
credit counseling company's repayment plan.
8. Credit Counseling: Leaving Families Worse Off
:
And even worse is that fact that putting
people into credit counseling repayment plans
that they cannot afford, only makes things
worse. People are left worse off than if
they had never signed up.
It stands to reason that if you pay money on
something you cannot afford....you have to take
that money away from paying something else.
And many times....the money is taken away from
paying things far more important than credit
card debt...things like your car payment, your
house payment, or things needed by your
children. I have seen people lose cars and
homes needlessly because they signed up for a
credit counseling repayment plan...rather than
filing bankruptcy. And even worse...what they
don't tell people....again, in my
experience....is that when you fall out of one
of these credit counseling repayment plans,
the credit card companies go back and
retroactively add in all the interest and
penalties and late fees that they would have
been owed.....as if the plan had never been
set up.
9. Credit Counseling: Their Real Purpose- To Keep People
Away From Bankruptcy Attorneys:
There are, I am sure, people who have
successfully completed one of these credit
counseling plans, but I suspect the percentage
is very small. From the credit card company's
point of view, credit counseling programs are
always a success...regardless of whether or
not the customer completes the repayment plan.
Why? Because every month a customer makes a
payment on one of these repayment plans.... is
a month the credit card companies take in more
money than if the customer filed bankruptcy
....and one more month that the customer is kept
out of the hands of a bankruptcy attorney.
10. Credit Counseling: The Credit Card Company
"Kickbacks"
They Don't Tell You About:
One of the major "come-ons" the
credit counseling companies employ is that
fact that they do not charge you for their service. But...think about
it. Every organization has to pay its bills,
the salaries, the rent, the utilities, the
cost of all those ads on TV, the cost of phone
book ads, etc., etc. The money has to
come from somewhere. So where does the money
come from?
The answer is "kickbacks" from the
credit card companies. But they don't call it
kickbacks. They call this money "fair
share". But kickbacks is what it
is...pure and simple. It works like this. The
credit card company pays the credit counseling company
a percentage of the money that the credit
counseling company collects for and sends in
to the credit card company. The problem with
these kickback-based operations is that the
credit card companies can then exert
tremendous pressure over the credit counseling
companies to downplay, bad mouth and
misrepresent the bankruptcy laws. In fact, one
of the rules laid down by the organizations
that oversee credit counseling agencies used
to be....and perhaps still is.....that the
word "bankruptcy" is never to be
mentioned, much less discussed. What a
surprise?
11. More Bad News About Credit Counseling:
And, this is just the tip of the iceberg.
There is lots of bad news about Credit
Counseling. But don't take our word for it.
See for yourself the report from the Consumer
Federation of America, a major consumer
protection organization. To find the report,
go to
http://www.consumerfed.org/
, then click on "Finance", then
click on "Credit Counseling". The
report is entitled: "FIRST-EVER STUDY OF
CREDIT COUNSELING FINDS HIGH FEES, BAD ADVICE
AND OTHER ABUSES BY NEW BREED OF
"NON-PROFIT" AGENCIES".
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