WHAT ARE MY OPTIONS FOR
DEBT RELIEF?​​
NOTE: the information published here should not be considered personal legal advice. Every case is different and without an attorney who knows the specifics of your situation, a mistake could cost you dearly. Set up a free consultation with ELC if you have any questions about your situation.
How do people get to the point of filing for bankruptcy?
Of course, if you find yourself in this position you already know of at least one way creditors can take over people’s lives. What we want to emphasize is that you’re not alone. Over half a million people file for bankruptcy each year, and other than a few high profile corporate and municipal scandals, they are not degenerates who set out to avoid their responsibilities, and neither are you!
​
Our clients have found themselves in this position not because they planned for this “easy out,” in fact most people who find themselves overwhelmed with debt were dealing with forces totally out of their control. And in our experience people tend to leave bankruptcy as a last resort.
Maybe they’ve been loyal, hard working employees who had their income taken away by a lay-off, or an economic downturn lead to reduced commissions. And as is true for most people, maybe their life expenses did not disappear with the income and they used credit cards to bridge the gap.
​
Or maybe they were a successful entrepreneur who did everything right, including taking on personal debt to make sure their employees could feed their families. But even the best business plans are subject to the ups and downs of the economy. Every business owner owes it to their stakeholders to weather these storms, and often the best option to keep the lights on is to go into debt.
​
The events that lead our clients to us are often more personal. Divorces and break-ups can be extremely expensive. Attorney’s fees aside, even an amicable divorce can leave the parties with halved income and duplicated expenses. And like with the other financial setbacks we’ve discussed, no one gets married while planning to one day go through a divorce.
​
But even if your income or businesses are solid and you have multiple backup plans, you can still find yourself drowning in debt. Unforeseen expenses like a medical emergency or a car accident can easily tip the financial scales from debt being manageable to overwhelming your resources.
​
Are any of these stories ringing bells? Do more than one of these situations sound similar to yours? It’s time to let go of the shame and the creditor calls and take control where you didn’t have any before.
​
Reach out to us now and tell us your story! More than anything we are here to listen.
​
While all these terrible events came about through no fault of our clients’ own, there is often an element of “bad decision making” in the mix. Maybe there was a point our clients could have turned the ship around, when they could have reduced expenses instead of going into greater debt. Or maybe the problems started after a particularly risky business venture went the wrong way, and then a divorce or illness was the straw that broke the camel’s back.
​
The truth is we, as Americans, are socially engineered to take risks in seeking success. In fact there is no success, no feeding your family or putting your kids through college, without some financial risk. Even as an employee you are taking a risk that your employer knows what he's doing. And we are obligated by our families to use debt to maintain a certain level of comfort regardless of the economic roller coaster we are all riding on whether we like it or not.
​
Creditors know these facts of life, it’s how they make their money. But the legal system knows how it works, too, and that’s why bankruptcy is an option. The economy, and the individuals that keep it moving, need a safety net like bankruptcy or the whole thing collapses because people stop taking risks or their debt burden renders them totally unproductive. You are a part of the give and take of this system and you need to take advantage of all it has to offer, just like your creditors do.
The only regrets our clients have is waiting too long and letting the creditors get the upper hand. If creditors strike first before you talk to an attorney, they can get default judgments that lead to wage garnishment or draining your business accounts.
​
-or-
​
Reach out now and tell us about your situation. After decades of practice we feel we have seen it all, but we know everyone has their personal story and we want to be a part of it!
​
-or if, like many of our clients, you’re the researching type-
Learn more about how bankruptcy works and how it could work for you, including its limitations.
What happens if I don’t do anything?
So you’ve found your life overwhelmed by debt, now what are your options? If you’ve been in this situation for a while and it’s already caused you and your family significant distress, leaving you unsure about your future, then you’ve already chosen one option. And that is to do nothing as your debt grows.
​
Thankfully the United States doesn’t have the debtor’s prisons of the past. So while your personal freedom isn’t at stake, creditors still have many ways to make your life miserable and destroy your financial freedom. Creditors can sue you and obtain a money judgment, and with the creditor-friendly court system they will have no problem doing so.
​
Creditors in some cases can also have your wages garnished. This means your employer is required by court order to turn over all or a portion of your paycheck to your creditor. You don't get the money even if you have direct deposit. So even if you had been keeping your head above water, paying what you could to the most persistent creditors, without that income you are officially drowning.
​
But even without taking such severe action, creditors know or can find out where you work and where you live, they know your phone number, and they are legally allowed to contact your relatives, friends and neighbors if they are unable to reach you. While there are protections against creditor harassment and limitations on their collection tactics, creditors do not always abide by these rules and they know how difficult and expensive it is for debtors to sue them.
​
So what, you’ve already been screening your calls for months or years, what’s wrong with a few more hits of the mute button? The shredder exists, you don’t even have to read their daily collection letters. Out of sight, out of mind, right?
​
But if you continue with this option, ignoring your creditors and letting the bills pile up, late fees and compounded interest making the hole deeper, what are the immediate consequences?
At ELC our strongest conviction is that keeping you and your family’s needs met, with food on the table and gas in the car, is vastly more important than satisfying your creditors. But if your wages are garnished or you’re saddled with an expensive lawsuit, how will you continue to provide for your family?
​
The truth is, you won’t. Overwhelming debt and creditor aggression is a family destroyer. Other than infidelity, financial issues are the top cause of the devastating divorce rate in this country. We already talked about how expensive divorce is, let alone the emotional toll a break-up has on everyone in your orbit.
​
And we all hope our children love us unconditionally, but what if we can no longer afford for our kid to play soccer or we’re forced to say no to that long-planned senior trip? What if, in an effort to keep creditors at bay, we are forced to eat into our child’s college fund, jeopardizing their future? If your life is controlled by creditors, when your oldest turns 16 instead of surprising them with that first used car, you have to ask them to get a job to contribute to the family’s resources.
​
Money isn’t everything, but the familial tension debt creates has real consequences that can have an impact for generations, preventing your family from thriving. All for what? To protect your creditors’ bottom line? The losses your accounts create for them are just a drop in the bucket on their balance sheet. And guess what, our system allows them to write off these losses anyway!
​
Most people are optimistic by nature, and the instinct to maintain the status quo is natural and well-intentioned. Our past successes tell us to stick it out, that a financial windfall is just around the corner, we can muscle our way out of this. And sometimes pride is more powerful than hope. Taking action requires admitting failure, and if we fail now, what hope is there for the future?
​
Our first priority at ELC is to erase this stigma and stop the debt-shame spiral in its tracks. We know from experience with our clients that taking action to change your situation is the right thing to do for you and your family. And the best outcomes require taking action sooner rather than later. But what action to take? Keep reading to see what your options are.
​
What about debt consolidation?
So you’ve decided to end the spiral and regain control of your financial life, good for you! If you got to our site by searching for “debt relief” you were likely inundated with options. But you probably had to scroll through many paid advertisements and articles pointing to debt consolidation before you found any mention of bankruptcy.
​
Debt consolidation is a huge, extremely profitable industry. Remember, debt consolidation companies are creditors like any other. Debt consolidators get rich the same way the rest of Wall Street does, by taking advantage of vulnerable people desperate to improve their situation.Their profits certainly don’t come from helping people become debt-free. For them debt equals interest, and interest equals profits.
​
In the best cases debt consolidation is simply rearranging the deckchairs on the Titanic. Yes your interest rates overall might be lower (for now), and your consolidation company has gotten your most aggressive creditors off your back. But you’re still in the same hole, facing the impossible choice between making monthly consolidation payments and keeping your family’s home from being foreclosed. We don’t consider this option to be “relief” so much as trading one unsustainable burden for another.
​
Moreover, debt consolidation can have a further negative effect on your credit score, and then what does your future look like? The Wall Street-dominated credit rating agencies need you to stay in debt for them to profit. What good is it to them if you’ve “paid off” most of your loans and killed the interest rate golden goose?
​
And non-bankruptcy debt-relief or debt settlement for less than the full amount of the debt can impact your tax liability. Without bankruptcy, reduced or forgiven debt is treated as taxable income.
​
And remember, this is your best outcome with debt consolidation! What if it goes wrong?
​
Debt consolidation advertisements are ubiquitous and enticing, filled with images of happy families spreading a banquet on the dinner table or finally taking that long-promised vacation. According to the ad you can get back to this life with just one phone call. Maybe even a favorite and trusted celebrity is on your TV convincing you to pick up the phone. But regardless of marketing, you are still placing your family’s future at the mercy of a company you might know very little about.
​
For instance, if you have a question about your consolidation loan, like why creditors are still harassing you even though they’ve supposedly all been paid off, or why your interest rate has suddenly ballooned, who will answer the phone? Is it your personal loan officer, who knows the intimate details of your situation and is eager to get to the bottom of the issue? Or will you reach a call center in another country and get fed a scripted response, solving nothing other than keeping you off the company’s back?
​
​
Let’s say you’ve done your due diligence and vetted the consolidation company, pouring over every word of the endless, boilerplate-laden promissory note they pressured you to sign within minutes of contacting them. What if this global megacorporation, in an effort to keep the debt mill running 24/7 by signing on everyone who responds to their ad blitz regardless of their customer service capacity, makes a mistake and misses one of your creditors? What options do you have then?
​
If you’ve ignored the continuing creditor calls because you assumed it was all taken care of by the consolidation, and this missed creditor decides to sue you, the answer is you have no options. Now you have a major consolidation loan payment to make, and you’re still burdened by a money judgment you can do very little about.
​
And why did you put yourself through all this just to have dug yourself deeper in debt and misery? Was it just to avoid the social stigma of filing for bankruptcy? Did you fall for the advertising to protect your family, or to protect your ego? Again, the only regrets our clients usually have after filing for bankruptcy is that they didn’t do it sooner.
​
A life overwhelmed by debt is taxing both mentally and physically, and at ELC we never judge people for doing what they thought was the right thing at the time. Bankruptcy is not always the answer. As discussed elsewhere not everyone is eligible for certain types of bankruptcy and bankruptcy itself comes with limitations and credit history trade-offs. For some, consolidation with a reputed company is a good answer.
​
What we urge our clients to do is take an emotionally objective look at all of their options. If you take advantage of ELC’s free consultation and tell us about your situation, we will help you do exactly that. Learn more about what to expect from our low-pressure consultation, including what we can do for you without filing a bankruptcy petition.
​
And continue reading to find out why bankruptcy might actually be the best option for you and your family to reset your financial life.
How is bankruptcy different?
So you’ve decided to take action to turn around your financial life, and you don’t think debt consolidation is the right option or you’ve tried it and found yourself in the same desperate situation or worse. But how would bankruptcy be any different?
For one, instead of staking your family’s future on the benevolence of a large, for-profit loan corporation, bankruptcy puts you in the hands of the federal courts. Now, we are not naive, we know firsthand how creditor-friendly the entire legal system is. But the key difference is that the bankruptcy system doesn’t make billions in profit off of your debt, as the debt consolidation industry does.
Corruption aside, at least the bankruptcy system is part of the executive branch, meaning they are politically accountable to voters like you and are certainly not out to profit off your misery. Instead of interminable interest payments, all you owe the bankruptcy court is a fee of $338 and they will stay between you and your creditors forever.
What is bankruptcy?
But what is bankruptcy and how does it work? Here we’ll make a long story short, but please explore the rest of our website to learn as much detail as you want about the bankruptcy process. Or just call us and let us talk you through it.
When your attorney files a bankruptcy petition on your behalf, you will immediately feel the benefits. For one, creditors will be legally forbidden from contacting you, they have to go through us! In fact, once you file a petition, and before your debts are even discharged, your creditors aren’t allowed to continue making collection actions at all. With important exceptions, your attorney will actually advise you to stop making any payments at all to certain creditors.
Read more about the Dos and Don’ts of bankruptcy, including what to do about mortgage payments on your family home or car during the bankruptcy process.
What happens next depends on what type of bankruptcy, or “chapter” of the US Bankruptcy Code you file your petition under. Our clients typically file for either Chapter 7 or Chapter 13 bankruptcy.
Chapter 7
In a chapter 7 bankruptcy, also known as “liquidation bankruptcy,” after a short period and a required creditor’s meeting your debt is wiped clean, forever, tax free! Again there are certain exceptions, such as your family’s home mortgage, but in that case you still keep your house and your equity.
If you are above a certain income level for your area, however, you might not be eligible for Chapter 7 bankruptcy and instead will likely file under chapter 13. Learn more about what we call a “means test” and how your attorney determines your eligibility.
Chapter 13
In a chapter 13 bankruptcy the process is largely the same. You get the immediate benefits and relief from collection communications described above; then, instead of your debt being discharged, you enter a payment plan.
At this point it is worth bringing up debt consolidation again and comparing it to a chapter 13 payment plan:
With a debt consolidation you stay in debt until every cent is paid off, and even if your consolidation company was able to negotiate a reduced obligation, that debt cancellation is still taxable. More importantly the size of your monthly consolidation loan payment has no relation to your available income or expenses. If you don’t make enough, your new creditor eats first, your family second.
Remember, we believe, as we are sure you do as well, that you should always feed your family before your creditors. A chapter 13 bankruptcy allows you to do just that, and more. The bankruptcy court, in determining your plan, takes into account your income and family expenses and asks what is left over for your creditors each month, regardless of your total debt load.
From there you’ll make these payments, which are dispersed to your creditors (and your lawyer) for a number of years (again determined by your financial situation) at which point your remaining debt is discharged, like in a chapter 7 filing, regardless of what you haven’t paid. Would your debt consolidation company do that for you? Would it be tax free?
With a chapter 13 bankruptcy you get all these benefits, while still maintaining the dignity of having skin in the game, contributing what you can while prioritizing protecting your family.
Conclusion
Thank you for reading through this information. We hope it has cleared up some misconceptions and stigma you might have associated with bankruptcy. Hopefully you are now ready to take control of your financial life in an objective way that is best for you and your family. Or, as Coach Taylor says, “clear eyes, full hearts, can’t lose!”
Set up a free consultation, tell us your story, and we’ll provide you with options tailor-made for you and your family.
Want to learn more? Check out our Bankruptcy Basics articles.
Learn more about eligibility requirements, and read about some of the limitations of bankruptcy.
