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Creditors and debt settlement companies make money by keeping you in debt. That’s why the don’t want you to know that under federal law you have a right to eliminate most, if not all, of your debt. And, as you’ll see below, you can eliminate debt for a fraction of what you would otherwise pay to the creditors or debt settlement companies — and in way less time.
Secret No. 1 – You may not have a right to settle your debt. But you do have the right to eliminate it!
You may have heard the commercials on the radio touting “You have the right to settle your debt” and “You can settle for pennies on the dollar.” This is a common tactic by debt settlement companies to lure in those desperate for relief. The truth is, no law — except bankruptcy — requires creditors to accept less than what is owed. Many creditors won’t even consider settling a debt until it has been bought and sold several times over and its collectability becomes questionable.
BUT federal law does give you the right to eliminate most, if not all, of your debt. Bankruptcy law allows for most debt, such as credit cards, medical bills, payday loans, and judgments to be completely eliminated. And it can be done in as little as three months versus the years that debt settlement can take and for a fraction of the cost!
Secret No. 2 – Debt settlement can take years and creditors can still sue for payment.
Think of the debt settlement process as a forced-savings account. You make monthly payments to the debt settlement company who then holds the funds in an account. Only once the debt settlement company feels it there is a sufficient balance in the account will it begin contacting creditors to settle the debt. Meanwhile creditors continue to report delinquent accounts, the length of delinquency grows, and your credit score continues to suffer.
Unlike bankruptcy, the amount of time needed to complete the debt settlement process is completely unknown and may take years to complete. Creditors are free to continue to take steps to collect the debt, including making calls, sending letters, filing lawsuits, and garnishing your pay. All while you are still obligated to make your monthly payments to the debt settlement company!
Secret No. 3 – Bankruptcy forces creditors to play by your terms. Debt settlement does not.
Filing bankruptcy forces creditors to immediately stop collection efforts and appear in one place – the United States Bankruptcy Court. Think of it as gaining the home court advantage. Bankruptcy courts are generally debtor friendly. And creditors must play by a unique set of rules that favor providing debtors a fresh start.
Debt settlement lacks these benefits. Creditors are free to burn up your phone, send collection letters, and file lawsuits. Bankruptcy offers the ability to immediately gain control and direct how the debt is to be resolved.
Secret No. 4 – You can keep your home, car, and property in bankruptcy.
It’s a common myth that you cannot keep property through a bankruptcy. The truth is, Indiana law allows most, if not all, property to be protected from the bankruptcy trustee and your creditors. For example, an individual filing bankruptcy can protect up to $19,300 in equity in their home, $10,250 in equity in a second home, vehicle, and personal property, $400 in cash, and 100% of their health savings accounts, and retirements accounts. These exemptions are often enough to allow most filers to eliminate their debt without losing any of their property.
Secret No. 5 – Your qualified retirement accounts are 100% protected from creditors.
Creditors don’t want you to know that tax-deferred retirement accounts (401(k), 403(b), IRA, and PERF retirement accounts) are 100% protected from garnishment! In fact, many creditors and debt settlement companies will suggest that rather than filing for bankruptcy, you withdraw funds from these accounts to pay your debts. DON’T! Withdrawing from these accounts causes the funds to lose their special protected status. And may cause penalties, fees, and taxes. Bankruptcy can allow for the elimination of debt while leaving these accounts 100% intact.
Secret No. 6 – Bankruptcy does not destroy your credit forever.
We’ve been trained to believe that our credit scores define who we are. We become ultra-protective of our scores; fearing anything that may tarnish or diminish them. What creditors don’t want you to know is that these scores quickly recover from a bankruptcy filing. Why? Because they don’t want you to eliminate your debt!
Bankruptcy will cause a credit score to drop by about 50 points. However, credit scores quickly bounce back and often improve because of the bankruptcy. Credit scores are based on several different factors, with each factor being weighed differently. For example, a credit score can be composed of credit usage vs. available credit, length of credit history, number of open accounts, hard inquiries, etc. By eliminating debt through bankruptcy, many of these factors are realigned or reset in your favor.
Secret No. 7 – You can acquire credit after bankruptcy.
Bankruptcy offers the opportunity for a fresh start – and a new credit history if you’re careful. A bankruptcy filing will reset the debt-to-income ratio, which helps increase your credit score. It also resets the credit usage back to zero. Finally, creditors know that you cannot file a chapter 7 bankruptcy again for another eight years. All of this translates to the ability to acquire credit after a bankruptcy filing! Creditors also tend to look favorably on a chapter 13 bankruptcy as it demonstrates a good-faith effort on the filer’s part to pay back at least some of the debt.
Secret No. 8 – You can purchase a car or home after bankruptcy.
Bankruptcy does not stop you from being able to purchase a car or home. Many auto dealers work with individuals emerging from bankruptcy or even in the middle of one. Sure, interest rates will be higher. But having an auto loan is another great way to quickly improve your credit score. Later, when your score has sufficiently improved, you may be able to refinance at a lower rate. Likewise, bankruptcy does not mean that you can never own a home. In fact, FHA guidelines provide that individuals who previously filed bankruptcy can apply for a FHA loan two years after receiving their bankruptcy discharge!
Secret No. 9 – Bankruptcy may be able to remove judgment liens.
In Indiana, judgments automatically become liens on real estate in the county in which the judgment was rendered. This means that if a judgment is entered against you, the judgment will need to be paid or removed before you can sell your home. However, in many cases, bankruptcy allows for the judgment lien to be avoided or “stripped” from the real estate. By doing so, the lien is removed and the debt is discharged just like credit cards, medical bills, and payday loans.
Secret No. 10 – Bankruptcy can help restore your driving privileges.
When a judgment is entered as part of an auto accident case, Indiana law provides for the suspension of driving privileges until the judgment is paid in full or the creditor enters a “Notice of Satisfaction.” For many, this situation becomes a vicious cycle. You can’t afford to pay the judgment, so your driving privileges are suspended. But without a license, you can’t make enough money to pay the judgment and have your privileges restored.
Bankruptcy can help break this cycle. Discharging the judgment in bankruptcy eliminates the requirement that it must be paid back. As there is longer an obligation to pay, there is no need for your driving privileges to remain suspended. A notice of discharge sent to the Bureau of Motor Vehicles along with proof of insurance should be sufficient to have your privileges reinstated.
Ready to Take the Next Step?
If you’re ready to take the next step, I encourage you to contact me or call (317) 883-7350 for a free, no obligation consultation. We’ll meet face-to-face and discuss your particular situation. We’ll review your options under the Bankruptcy Code, discuss whether a chapter 7 or chapter 13 bankruptcy is a right fit for you, and develop a strategy for getting you back to the life YOU want to live!
About Matthew Cree
Matthew Cree is an attorney and counselor at law focusing on bankruptcy and collection defense in Greenwood, Indiana. His philosophy is to be there with his client every step of the way and to make bankruptcy as stress-free as possible.