Evaluating Bankruptcy Alternatives
Too many bankruptcy lawyers recommend Chapter 7 and 13 without giving serious consideration to bankruptcy alternatives. Similarly, too many debt consolidation lenders and credit counselors intentionally malign bankruptcy with a wide assortment of intentional deceptions. The common ground among these professionals is their desire to sell their own services. Be assured, a fair and impartial evaluation by an ethical professional is essential, and must include consideration all filing options under current and pending bankruptcy legislation, as well as appropriate bankruptcy alternatives. Only then you may discover the best solution.
Choosing Bankruptcy Alternatives
Before problems become serious, many debtors experience a surprisingly high level of success by simply calling creditors to request extensions, lower payments, or refinancing. All professional lenders experience work-out situations with their customers, and they know a hard line tactic seldom produces best results. Lenders hope that small assistance initially will avoid large charge-offs later. They also consider a debtor's willingness to discuss problems and suggests solutions as a positive indication. However, if an existing lender is uncooperative, many other effective options exist in addition to popular lender-driven solutions:
One the easiest and quickest ways to avoid filing relies on home equity. Many debt consolidation lenders require home ownership, substantial equity, and regular monthly income before considering these types of loans. For debtors who qualify, delaying problems becomes easy, yet seldom addresses the underlying cause of financial strain. If left unattended, the cause of financial difficulty usually catches up, and debtors find themselves in the same situation, but this time, with less exempt equity if filing becomes necessary. For debtors, the goal should be to maximum realistic improvement in net worth, rather than spending net worth to delay problems:
A Word of Caution
Many popular debt consolidation lenders resort to high interest rates and non-exempt collateral to support extensions of high risk credit. Be careful because predatory lending practices are becoming more common and seldom prosecuted. From 2000 through 2009, the Better Business Bureau reported the No. 1 consumer complaint received was filed against lenders who clearly violated credit agreements. During this same period, the Federal Comptroller of Currency (with regulatory authority over National Banks) prosecuted only one complaint (Providian settled out of court - $400,000,000 - accused of wrongfully holding payments to revoke low interest offers and produce unauthorized late charges). AG's from all 50 states sued the Federal Comptroller who claimed exclusive federal jurisdiction and refused to allow state consumer protection agencies to prosecute citizens against intentional violations. Bottom line: consumer protection laws are no longer enforced despite rampant lender violations.
Popular Commercial Choices
Credit counseling services fall into two broad categories: 1) those supported by donations from credit card companies, and 2) those supported by fees paid by participants. Be aware, free and nearly free services may serve two masters, and the inherent conflict of interest may be apparent in terms offered. Before enrolling in any credit counseling service, be sure to inquire about financial support of the agency. At a minimum, request at least three free quotes from both types of services to compare benefits, terms, and liability.
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