Athena Legal

I woke up unreasonably early one morning earlier this summer and turned on the T.V.   A random morning show was playing on the station I had fallen asleep to the previous evening.   (these are the wild times of a bk attorney…)

Anyhow, as I was about to change the channel, a segment on money matters began that caught my attention.  An “expert” debt negotiator was discussing why debt settlement is better than bankruptcy. The more I listened, the more frustrated I became about the mis-information that was coming from this man’s mouth. The segment essentially was a thinly-veiled advertisement for this specific debt settlement company and he was misleading people about the so-called benefits of debt settlement and negatives of bankruptcy.

Viewers provided a few good questions that included:

1. When should someone consider bankruptcy?
2. What are better options?

The “expert” claimed that bankruptcy should be a last resort. Yes, bankruptcy is not something anyone should jump into without it being an appropriate, necessary measure.  However, bankruptcy has innumerable benefits that a negotiation company cannot claim.  Below is a short list of benefits unique to bankruptcy.

• Bankruptcy is based on federal law
• You are protected by the Automatic Stay provision from lawsuits, garnishments, foreclosures, repossessions and creditor calls
• Your creditors must participate and abide by the court orders
• You will not have a cancellation of debt tax liability
• Bankruptcy is often less expensive than debt negotiation
• In certain situations, you can remove second mortgages from real estate

The “expert” also claimed that most people don’t qualify for Chapter 7 anymore due to the enactment of BAPCPA.  This simply is not true.  People still qualify.  In my practice, most of my clients file Chapter 7.  The 2005 BAPCPA amendments to the United States Code created something called the means test which requires a Chapter 7 debtor to fall under a certain income threshold.  The threshold is based on household size.  Although the means test makes the filing process more complicated, those who need protection often qualify.  The key is to speak to a qualified bankruptcy attorney who can help you navigate the process and explore options with you.

The “expert” also indicated that with the debt settlement, you simply offer to pay what you can afford.  What he did not mention is that what you offer may be different than what your creditors expect or demand.  When there is a difference, your creditors may, and often do, proceed with lawsuits.

What I can tell you is that I commonly see the following situation.  A person participates in a debt negotiation program.  They pay high fees to a company to resolve their financial issues.  They pay into the program for a certain number of months and then receive a lawsuit in the mail for a debt that was included in the program.  Bankruptcy becomes necessary and something that should have been done from the beginning.  Time and money have been lost.  I see this over and over and over again.

Everyone wants “to do the right thing.”  The right thing may be bankruptcy.    If you have questions, please contact an attorney who can advise you of your options.