Debt settlement is an alternative to bankruptcy or an option for people who are experiencing severe financial distress and may not qualify for bankruptcy or have too many assets to lose in a bankruptcy filing. At the Bankruptcy Attorney Group, we work with you and your creditors to reduce interest rates, principal or to suspend or extend payments. This can offer you considerable relief from constant creditor calls, threats of legal action and anxiety over having little disposable income at the end of each month.
Why use a Debt Settlement Lawyer?
Bankruptcy is a legal process that can discharge substantial unsecured debt with most debtors able to retain all or most of their personal assets. However, you do have to meet a means test to qualify for a Chapter 7 by meeting the state income median based on your household size or qualify under other factors. Some debtors have considerable holdings that they risk losing in a bankruptcy such as second homes or stocks. If you have substantial equity in a homestead, you could lose much of it in a Chapter 7.
If facing foreclosure, a Chapter 13 can help you avoid it but only if you are able to make the monthly payments while also adhering to the debt repayment plan, which some debtors are not able to meet.
For debtors who have filed for bankruptcy protection before, they are ineligible for Chapter 7 protection until 8 years has passed since they last filed a Chapter 7. If their prior filing was Chapter 13, they cannot file a Chapter 7 until 4 years passes since the discharge date.
For some, maintaining good relations with certain creditors is important since they may wish to continue business with them. By showing a good faith attempt to settle a debt that has become one among many others, they can continue the relationship by using the debt settlement process.
Preparing for Debt Settlement
Before debt settlement can be an effective option, you need to have saved funds in a client trust account that our office has for the exclusive purpose of paying your creditors. It can take some time to build up enough funds to make this option a practicable one but it will benefit you in the long run and save you substantial amounts of money.
Using a law office as your debt settlement negotiator is much more efficient since creditors dealing with attorneys are aware that the debtor can file for bankruptcy and wipe out their debt. If a deal is negotiated, we can use the funds in the trust account to pay the creditor, usually at a greatly reduced amount.
Types of Debts that are Negotiated
Most people who are facing financial Armageddon have credit card debt. Many cards have significant interest rates that these companies are willing to reduce or take a lump sum payment well below the principal amount owed or receive nothing. In some cases, the credit card companies have received sums well above the amount borrowed because of the interest payments.
A junior mortgage is secondary to the first mortgage. If you have negative equity in your home, you can remove or strip the second mortgage in a Chapter 13 bankruptcy by having us file a motion in bankruptcy court. This would reduce the junior mortgage to unsecured debt status where the lienholder would receive a fraction of what is owed and then be discharged at the end of your plan.
If you do not want to file a Chapter 13, we can usually negotiate a deal where the junior lienholder is paid a small amount of what is owed in settlement of the obligation. Such settlements are possible since the lienholder knows that if the first lienholder forecloses, there will be nothing remaining for it.
Taxes and Offers in Compromise
Taxes are a burden to those who are unable to pay them since penalties and interest accumulate over time to increase the amounts owed with no end in sight until the statute of limitation expires on collecting the debt. Meanwhile, the IRS can garnish wages or seize property from you.
If you can demonstrate financial hardship and an inability to pay, our attorneys can often negotiate an Offer in Compromise or OIC. To qualify for an OIC, the IRS needs to be convinced that you have suffered some kind of hardship or extreme event that makes paying the owed taxes improbable or impossible.
This would include:
- Loss of employment
- Catastrophic injury or illness
- Other circumstances resulting in a substantial financial hardship
Once submitted, an OIC can take up to one year to be approved. If it is, you can pay either a lump sum settlement or defer payment up to 24 months, the maximum time allowable.
Call the Los Angeles Bankruptcy Attorney Group
A Debt settlement lawyer may be the most viable option for your financial problems or bankruptcy. Find out how our office can help with even the most intractable and hopeless struggle you find yourself in. Contact us today for a free consultation and analysis of how we can assist you in resolving your current situation.