Why Choose Debt Settlement?
There can be a variety of reasons that clients of mine would choose debt settlement over bankruptcy.
- Some clients who are above the median income but only have unsecured credit card debt and don’t need a chapter 13 to keep possessions that are not exemptable or to cure late payments on a mortgage, don’t want to be in a 5 year plan where they have to stick to a chapter 13 budget. Some of these clients can come up with 30-40% of what they owe there unsecured creditors in a relatively short time(under 2 years), some even quicker. They have an advantage of working with an effective negotiator and attorney who understands how to convince creditors that taking a lump sum of 30% is better than me filing bankruptcy or them spending money to obtain a judgment through the courts.
- I have had other clients that have not filed their tax returns in several years and aren’t about to pay the penalties that it would involve by filing them. You can’t file bankruptcy without being current on your tax returns so this leaves them in a position where they need to negotiate and therefore do debt settlement. Having an attorney on your side as opposed to a private company is very advantageous as I understand how wage garnishments work, the percent they can take, how long it takes to obtain and enforce judgments etc. I can also enforce FDCPA violations against collection companies that harrass my clients and file state court cases against them, this can be used as a negotiating tactic as well when private debt settlement companies cannot do this.
- Some clients have low debts through small unsecured debts and/or pay day loan companies where it just doesn’t make sense to file bankruptcy on those debts. Its easier for an attorney to work with pay day loan lenders as many(especially internet based) are operating illegally and charging interest rates in violation of state usury laws. Pay day lenders are of course obviously aware of my ability to file a bankruptcy at any point if we can’t come up with a workable solution.
- Bankruptcy requires that you tell the truth about your financial situation under penalty of perjury. Debt settlement allows you to lie and do what ever is necessary to take care of the debt under your own terms. This is a big advantage for certain clients who want to get out of debt but don’t want to show their hand.
- In states with low wage garnishment laws debt settlement is often better than filing for bankruptcy. For example I have a New York client(New York only allows 10% for garnishments as opposed to 25% for some states). My client has a judgment against her from one creditor for 30k. She makes 100k a year so will be paying 10% on that single judgment for 3 years. There are 120k in other creditors who are going to be waiting in line for a long time to get paid as only one judgment gets paid at a time. I told her to speak with a bankruptcy attorney in NYC before hiring me as it could be more advantageous to file bankruptcy. Her payment in a chapter 13 plan would have been close to 2000 a month due to her high income and not owning a home with a high mortgage to offset her payment. I have been able to get 4 of her other creditors through strong negotiation to realize they aren’t getting paid for years and if her income drops she’s doing a chapter 7 and they won’t get a dime. All these creditors have settled for 20% which we did as lump sum settlements. She will end up paying 40k on a debt of 150k. If she had done a chapter 13 bankruptcy she would have paid 140k. For some higher income workers debt settlement can make more sense.