When debt from credit cards, medical bills, mortgages and other
sources pile up, it can be difficult to know what to do and how to
resolve your financial issues. There are basically six ways that you
can deal with your debts:
- Find a way to pay off all of the debts by
yourself. Unfortunately, for many people, this is not a viable option,
especially after a job loss, divorce or other life changing event.
Some people take to desperate measures of wiping out 401(k) plans and other retirement accounts to pay off their debts.
- Go to a credit counseling agency. While you may be able to get a reduced interest rate this way, you are still paying the debt, and this may have an adverse effect on your credit score. Most credit counseling agencies are partially funded by credit card companies. The credit card companies agree to “kickback” a fee to the counseling agency equal to a percentage of the payments sent to them each month. These agencies are thus working for the credit card companies more than for you.
- Debt settlement and debt negotiation companies. These are the companies who can do the greatest disservice, and the most damage, to people in debt. While a person is still making monthly payments, he or she is usually not represented by an attorney, so there is no representation if a creditor tries to sue or obtain a wage garnishment. Meanwhile, credit is still being damaged, since the person is paying the debt settlement company, and not the creditors. Months can pass before the company even tries to settle the debt, during which a credit score can plummet. Most people do not end up even finishing debt settlement programs, leaving them in a worse state than when they first began the program. Many clients call me after their debt settlement program has failed and they are now facing an impending lawsuit or judgment.
- Chapter 7 bankruptcy. Chapter 7 is a liquidation form of bankruptcy that allows a person to discharge credit card debt and other dischargeable debts. Once the process of Chapter 7 bankruptcy has ended, the person will usually be debt free, and, in most cases, will be able to keep all of his or her property.
- Chapter 13 bankruptcy. Chapter 13 allows a person to repay debts through a repayment plan over a three to five year period. This option is typically best for a person who cannot qualify for Chapter 7 bankruptcy. Other times a Chapter 13 may be a good choice when it can be used to strip away a 2nd or 3rd mortgage from your house.
- Default on the debts. For some people, this is a good option is they are “judgment proof. For instance, if all you have is Social Security income, your typical creditors cannot touch it. If you tell your creditors that you cannot and will not pay they can no longer call you per the debt collection rules in California. They can sue you, but that will not matter if you are truly “judgement proof” as there is nothing that they could do with a judgement. Whether or not you are truly judgment proof is an evaluation we can assess for you over the phone.
Schedule a Free Initial Consultation at Alzate Varley APC
Our firm is available seven days a week by phone, email, text message and video conference and by appointment at our Point Loma office. We are always available to answer questions and we answer all of our own phone calls. Contact Alzate Varley, APC, to schedule a free initial phone consultation at 619-800-8804.