April 2008, Topic - Bankruptcy, Tips for settling on a debt and More

01.  Negotiating with Creditors
02.  Doing Nothing?
03.  Tips for settling on a debt
04.  Credit Counseling & Symptoms that suggest the need to hire
        a credit counseling agency.
05.  Home Equity Loans, Tips for taking equity out of home
        & Bankruptcy Options

---

A lot of us are drowning in debt and looking for a way out. For instance, the foreclosure rate increased 45% this month from the prior month. The question is what is the best path to follow. Many people get out debt by filing bankruptcy because they are not aware of other options available to them. Each week 3,500 people file for bankruptcy. It seems to be the easy way out. There are some debts that declaring bankruptcy will not resolve including back taxes, child support, alimony and student loans.

In some cases bankruptcy may be the best option, however there are other options available to consumers that are less publicized. The fight to get rid of debt is not an easy one. Whichever route you choose to go will take time, patience and dedication. We have explored various routes and in this newsletter and provide the advantages and disadvantages for each. Remember only you can decide what is best for your individual situation. Before making any decision make sure you review all of your options and speak with a debt consolidation professional.

1. Negotiating with Creditors

Negotiating with your creditors can be overwhelming and sound quite scary. However it may be a viable choice for you. You must be open and honest with them. You may be surprised at how willing they are to work out a plan for you that will meet both of your needs. The best time to try to contact them is prior to missing a payment. You can explain your situation and offer them an affordable payment every month. Below are ways to negotiate with your creditors for the best results.

Different ways to negotiate with your creditors

Interest only payments

Making no payments for a set amount of time

Making reduced payments for a set amount of time

Offering a lump sum or settlement

If creditors will not accept your proposals

Send your proposal in writing including your situation, debts and income.

Ask them to reconsider your proposal.

Advise them if other creditors have accepted your proposal.

If it does go to court make sure you bring all documents that prove you have attempted to make good on the debt. Stick with it and be persistent.

One of the ideas listed was to ask to have your interest rate lowered. Many consumers do not realize how much they are paying in interest every month. There is no cap on interest rates for credit cards. Lenders can charge you any interest rate they find reasonable. Making minimum payments every month on a high interest rate credit card will not pay down your balances.

There are some debts that are not usually negotiable. These debts include child support, income tax, and mortgage payments, whereas other accounts like credit cards and unsecured debts are. Unsecured debts simply mean that if the borrower does not make payments nothing can be taken. No collateral is required to obtain a credit card or other unsecured loans. On the contrary, a mortgage or car loan is referred to as a secured debt. If payments are not made on these debts the item such as house or car can be taken in lieu of payment.

2. Doing Nothing?

It sounds like a dream come true but sometimes the best approach is simply to do nothing. If you always intend on living very simply meaning you have minimal income and no properties it is sometimes to your advantage to do nothing. You may be considered "judgment proof". Judgment proof is when you have nothing to offer. In other words if you are sued you have nothing that can be legally taken. A creditor cannot take away essential items from you like clothing.

If you never intend on making enough money to own property then this may be a very good option for you. In most cases the creditors will not sue you due to the fact there is nothing to collect. They will usually just write off the debt, which allows them to use it as a business loss for tax purposes. The debt eventually becomes uncollectible. You want to think very strongly before doing this though. It will affect your credit for a very long time. Someone who stops paying their debt may be able to obtain credit cards and other loans, however the interest rates will be significantly higher.

The way the process works is once the borrower stops making payments on an account it is sold to a collection agency. The process consists of creditors selling agencies the debt at a reduced amount. The agency then makes a profit by discounting the amount owed to the debtor. This usually occurs after the lender has not received payment for about 90 days. The account then has an R9 rating also known as being charged off. Having accounts charged off will affect your credit in a negative way. Collectors will haunt you and request payment many times. Most people who decide to take this route are advised to change their phone numbers to avoid being harassed by creditors.

3. Tips for settling on a debt

Settlement is a term that is used to define paying back part of what you owe. Creditors will not settle on a debt, but collection agencies will. Once your account is sold to a collection agency there is a settlement that is offered. The advantage to settling is that you get rid of the debt at a reduced amount. The disadvantage is that the creditor will report it as settled. A settled debt on your credit report is better than an unpaid debt but still not a satisfactory rating.

Always be honest but at the same time elaborate on any hardships.

Be honest about your other alternatives including bankruptcy.

Never tell them where you bank or work. The reason is if ever sued you have just done half their job. If asked state "no comment".

Always send a cashier's check instead of a personal check to avoid revealing the name of your bank.

Keep in mind that although a lawyer will be able to help you through the process of settling they cost money. Legal fees may take any money that you are saving by settling.

When the collection agency agrees to settle try to get in writing that they will report satisfied in full on credit report.

You will sometimes owe income tax on the debt settled since it is considered income.

4. Credit Counseling & Symptoms that suggest the need to hire

Many people do not even view credit counseling as an option. The reason for this is because of the fraudulent companies that claim to be counselors but never solve your problem. In recent years there have been a few published reports of scams by these companies. It is very unfortunate for many people in debt. There are thousands of credit counseling companies that are reputable companies that get no press about the good job they do for people. However the companies that have taken advantage of people make front page news. Before deciding to take this alternative to bankruptcy you must do your homework. Always check out the company on the better business bureau. Also check with your state attorney general's office to make sure there are no pending investigations against them.

Credit counseling has helped many people in recent years resolve debt and save thousands of dollars in interest. Credit counseling is simply a third party that works with creditors to reduce your interest rates and eliminate or reduce your penalties and fees. For the record all credit counseling companies are given the same rates by creditors. The thing that the credit counseling companies do is reduce your interest payments so in essence you will save a lot of money in finance charges over the long run. Remember one of the reasons you choose credit counseling is because you want to maintain a good credit score and pay back all your debt in full.

Credit counseling is a great alternative to bankruptcy due to the fact that it does not affect your credit report in a negative way. You are paying your debt in full just at a reduced interest rate.

Symptoms that suggest the need to hire a credit counseling agency.

Your debt is rising and your income is not.

You are using one debt to pay another.

You have numerous credit cards.

You have maxed out most cards.

You are not able to make payments each month.

You have lost track of how much you owe on each card.

Your phone rings constantly with creditors you owe money to.

You use your credit card for small purchases.

You use your savings to pay everyday bills.

Questions to ask before signing up with a credit counseling company.

The price for your services.

What is the next step if I cannot afford this?

How does your plan work?

How will I know my creditors have received payment?

Is my information confidential?

Will I receive up to date information from my creditors?

5. Home Equity Loans, Tips for taking equity out of home

Another option is to take out a home equity loan to pay off credit card debt. There are advantages and disadvantages to doing this. This is very risky and must be done only if you have a financial plan and a secure job. Not many people recommend taking this alternative to pay off debt. A home equity loan is when you borrow money using your home as a collateral. The main reason this is not recommended is because you are taking secured debt and turning it into unsecured debt.

Advantages of a HELOC	Disadvantages of a HELOC
Interest is deductible up to $100,000.	Home ownership at risk if you default.
Lower interest rates.	Variable interest rates can mean that your payments can change.
Money can be used for anything you would like.	If the market decreases you could lose money or end up in debt.

---

Tips for taking equity out of home

1. Find out the values of homes in your areas.

2. Make sure your credit score is good and all information on your report is accurate.

3. Make sure the lender you decide to go through is reputable. It is usually better to deal with your primary mortgage holder. They will be more likely to charge no fees and offer incentives to maintain your financial relationship.

4. Be sure that you are not taken advantage of with fees and unnecessary fees.

Bankruptcy

Bankruptcy law was developed to allow a debtor, who is in major financial trouble, to resolve debts through the division of assets among the creditors. The division allows it to be fair to the creditors and debtors. There are different types of bankruptcy. Some allow a debtor to maintain their business and use the earnings generated to resolve the debts. The other purpose of bankruptcy is to allow the debtor to be discharged of financial obligations they have accumulated.

Liquidation also known as Chapter 7 is the most common form of bankruptcy that is filed. The process involves being appointed a trustee who will gather the nonexempt property of the filer, sell it and distribute the money to the creditors to reduce the amount of debt owed. After the bankruptcy is filed and completed creditors may not contact the debtor. Debtors cannot transfer assets including property to other parties after it has been established part of the estate. In addition to that proceeding transfers of assets may be delayed or denied entirely.

The other form of bankruptcy, which has become more popular since 2005, is Chapter 13. Chapter 13 is also known as reorganization or a wage earner's plan. It gives individuals with income an opportunity to create a plan to repay all or part of their debts. The creditors propose a repayment plan so that the debtor can repay debts over a period of 3 to 5 years. If the debtor's current monthly income is less than the state median, the proposed plan will have a time limit of 3 years unless the court finds extraordinary measures and extends it. In the cases where the debtor's current monthly income is more than the state median the proposed plan will be for 5 years. In any case, plans cannot extend longer than 5 years.

Anyone is eligible for Chapter 13 who has unsecured debts that are less than $307,675 and secured debts that are less than $922,975. The individual cannot file under any chapter of bankruptcy if during the past 180 days a prior bankruptcy petition was dismissed because of the debtor's failure to appear before the court or comply with the orders. Also, if the creditor applied to get relief from the court to recover property in which they had liens upon bankruptcy will not be an option. In addition to that no one may file for any type of bankruptcy until an approved credit counseling agency has been contacted by the debtor.

Advantages of Chapter 13

Save your home from foreclosure.

Reschedule secured debts, with the exception of a mortgage, to extend over the term of the Chapter 13 plan. This will lower your payments.

This could protect cosigners or anyone else who was liable with the debtor on "consumer debts".

Debtors will not have to have any direct contact with the creditors. The payments are paid through a trustee who then sends to creditors.

Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us - to reserve your seat contact our Education Team on 561-883-2398 Ex.310 | http://www.ufsdebtconsolidation.org

Newsletter 03
Rev.1
March, 2008