Are Debt Negotiation Companies Better than Bankruptcy?

Most of the time the answer is NO! Before considering bankruptcy, many of my clients have considered using a debt negotiation service that advertised on the radio or TV. These ads claimed to be able to give creditor relief for a fraction of the amount owed. Well, if it looks too good to be true, it probably is.

You should avoid these “debt relief agencies” for several reasons.

1. You pay most of your settlement payment to the negotiation company, meaning that many of your initial debt payments are not actually paying off debt.

2. These agencies are not attorneys. If creditors disagree with settlement terms they often take legal action against you. These agencies are unable to defend you in court.

3. Debt negotiation can be worse for your credit than bankruptcy since it will report as in default. Lesser settlement amounts will report negatively on your credit report.

4. Many of these companies (out of state) often commit fraud and don’t help you much, yet still charge fees. Currently, many of these companies are under investigation from the Missouri Attorney General.

I would very rarely recommend debt negotiation companies. The only time I would recommend a debt negotiation company is if you:

1. Can pay a monthly payment

2. Have little unsecured debt like credit cards, medical bills, and personal loans

3. Found a local company

4. Have assets that could possibly be seized in a bankruptcy.

Bankruptcy can offer you debt relief that debt negotiation can’t do. Lastly, the only types of settlements that have good results are lump-sum settlements, meaning that payment plans are not effective. Before you pursue debt negotiation, please speak with an experienced bankruptcy attorney, former clients of the company, and the Missouri Attorney General’s office.

 

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Missouri Bankruptcy Advice: Before bankruptcy is it a good idea to pay off minor credit card debt?

Paying off a credit card with a small balance before a bankruptcy filing may be advisable for post-bankruptcy credit building. Debtors must list all of their creditors in their bankruptcy schedules (all debts). The Court then notifies these creditors of the bankruptcy filing. If an individual has a credit card with a balance of less than $600, and is considering a chapter 7 case, he or she may consider paying off the balance before filing for bankruptcy. If there is no balance owed on that credit card at the time of filing, it is not necessary to list it in the bankruptcy schedules, and the card company will not be notified of the bankruptcy by the court. After the bankruptcy is filed, the debtor will usually retain charging privileges. Responsible use of the credit card after a chapter 7 filing should help the debtor to rebuild his or her credit. However, know that it is possible that any credit card company will learn of the bankruptcy through a credit report or some other means, and could terminate charging privileges at that time.

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Missouri Bankruptcy Help: Can I transfer my assets to someone else before bankruptcy?

It is generally not a good idea to put property you own into someone else’s name in the time leading up to a bankruptcy filing. Transferring assets to another individual or entity prior to filing bankruptcy to protect the assets from being taken by a bankruptcy trustee is fraud. In addition to asking the court to revoke or deny a debtor his or her discharge, a trustee can take back the assets from the person to whom they were transferred; often times by suing them.

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Missouri Bankruptcy Help: Should I borrow against my home to pay off debt?

If considering bankruptcy, do not borrow money against your home to pay off or consolidate debt. The homestead exemption laws in Missouri and Kansas both protect some equity in a bankruptcy debtor’s house. As a general rule, incurring additional debt against a home often results in higher payments which may place consumers at risk of losing their homes at a later date. Consumers should consider resolving their financial difficulties through bankruptcy debt reorganization (chapter 13) or bankruptcy debt elimination (chapter 7). A debtor may be able to claim the equity in their home as exempt and emerge from bankruptcy with the equity in their home intact

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Missouri Bankruptcy Filing Tip Help: Should I pay off debt with retirement funds?

It is usually not advisable to withdraw or take out a loan against a 401K,IRA or other qualified retirement account to pay off or consolidate debt. Under Missouri and Kansas law, an individual’s interest in their retirement plan such as a 401(k), IRA, or other similar tax-deferred retirement plan is typically protected from creditors in bankruptcy. Meaning under normal circumstances an individual can eliminate or reorganize debt, and retain all funds in their 401(k), IRA or other similar retirement plans (keeping in mind that deposits made within a year of a bankruptcy filing may not be exempt). An early withdrawal can also result in tax liabilities and penalties which are typically not dischargeable in bankruptcy.

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When Should You File Chapter 11 Bankruptcy

Clients often ask me about the different types of bankruptcy, including Chapter 11 bankruptcy. A Chapter 11 bankruptcy serves two specific purposes: 1) restructuring business debt and 2) restructuring consumer debt for individuals that have too much debt to qualify for Chapter 13 bankruptcy.

Chapter 11 bankruptcy can be a good option for businesses, but the business has to reorganize its debt to continue operations. Clients usually ask about this type of business when they have a business that is struggling. This type of bankruptcy will only work for businesses that have opportunities to regain profitability in the long run. For businesses that have little hope in regaining profitability, Chapter 7 is a better option since a Chapter 11 will only restructure debt but not eliminate it.

For individuals, Chapter 11 bankruptcy is an option for those with debts that exceed Chapter 13 debt limitations. For those with over $1,081,400 of secured debt (home/car loans) and/or $360,475 of unsecured debt (any other type of debt except student loans and taxes), you cannot qualify for Chapter 13. In Missouri, Chapter 11 legal fees can be very high, so it is only recommended for businesses with an optimistic future or for individuals that don’t qualify for Chapter 13. At the Missouri Bankruptcy Center, we can help evaluate your situation to see if Chapter 11 bankruptcy is right for you.

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What should you do with your retirement plan before Missouri bankruptcy?

I often get this question, as do most Missouri bankruptcy attorneys, “How does bankruptcy effect my retirement?” I’ve heard this question from my clients because they are concerned about the possibility of bankruptcy depleting their retirement accounts. I’ve also been asked this question by several financial planners because they are interested on how to advise their clients that are facing economic constraints. When it comes to retirement accounts and bankruptcy, there are three simple rules to follow: 1) In Missouri, your retirement is almost always exempt from the claims of your creditors in a bankruptcy, 2) Do not liquidate your retirement in an attempt to pay some or all of your creditors, and 3) Retirement accounts can actually help you protect otherwise non-exempt assets, such as cash, on the eve of filling.

Under Missouri bankruptcy law, most retirement plans are exempted from the claims of your creditors. Bankruptcy allows you to discharge your debts without liquidating your hard earned retirement. Most retirement plans are exempt under Missouri and Federal bankruptcy code, but you will need to speak with an Attorney or your financial planner to be certain as to the status of your particular retirement plan. Another common mistake, either made in under the pressure of growing debt or by bad advice, is liquidating your retirement in order to pay your creditors. There are several reasons to avoid this at all costs. One reason is that most individuals cannot freely access their retirement. There may be fees, and more importantly, taxes that are incurred by accessing funds from your retirement. The taxes assessed are non-dischargeable in bankruptcy in most circumstances. This results in another debt you incurred that cannot be addressed through a bankruptcy filing. Another reason to avoid this action is that most individuals only make a dent in their debt and will still need to file bankruptcy; however, their retirement that they would have been able to retain is now liquidated. Finally, several individuals I’ve seen have paid down the wrong debt with their retirement and are now in a far worse situation in bankruptcy. By paying down loans like mortgages or car notes, you create equity in an asset that you will have to address in a bankruptcy. You are basically paying for the asset twice by taking this action.

Very briefly, retirement planning can actually benefit you in bankruptcy. Under Missouri law, you can convert non-exempt assets into certain types of retirements, or other exempt assets, on the eve of filing and avoid the seizure of those assets in bankruptcy. This is a complicated task so it would be best to consult with Missouri bankruptcy attorneys. Retirement planning is something that should be addressed in a thorough and well planned manner. The same rule applies as to how to use your retirement when you are facing financial difficulties. If you are considering accessing your retirement to address your debt, it would be best to consult with Missouri bankruptcy attorneys prior to taking any action.

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Can I force my real estate creditor to foreclose on my home?

The answer is typically no. Over the past year I have received various questions about this subject.  People, especially those who surrender a house in connection with a bankruptcy filing, often look forward to a foreclosure date.  This is because until foreclosure, the homeowner continues to be the owner of the property, unless the agreement between the individual and the real estate creditor says otherwise. Thus, although an individual files a bankruptcy and indicates her intent to surrender her home to the creditor(s), she is still the owner of the home until foreclosure, and will continue to be responsible for paying whatever real estate taxes, homeowners’ association fees and municipal fines accrue after the filing of the case.  The owner may also be personally liable for the value of the property if it uninsured and there is property damage.

Under the Bankruptcy Code, the surrender of collateral requires the mutual agreement between the parties involved, and occurs as a result of the consent of both parties. Surrender of property to a secured creditor does not compel the creditor to accept the title to the surrendered property, even when the surrender is pursuant to Bankruptcy filing.  Also, courts have rejected the idea that a debtor can compel or force a creditor to foreclose on surrendered property, unless the creditor has already consented to a title transfer.

I commonly recommend that bankruptcy clients continue living in a surrendered house until they are notified of a foreclosure sale date.  This allows them to live “rent free” for a time, and also keeps the property occupied.  Occupation tends to greatly reduce the chance of municipal fines, vandalism and damage due to extreme temperatures. Sometimes a deed-in-lieu of foreclosure arrangement can be reached with the creditor that refuses to foreclose.  This often works to transfer title and relieve the debtor of the burdens of ownership.

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