Your debt management may come down to either filing for bankruptcy or negotiating with lenders and consolidating the debt. These different strategies have both positive and negative consequences. At Grainger Legal Services, an experienced Alabama bankruptcy lawyer can advise individuals on the debt collections process and whether they may want to negotiate with lenders to get their debts consolidated. This technique can help you protect your credit rating and allow you to save money, but for some people filing for bankruptcy is a better choice.
Debt consolidation allows all your debts to be put together so that you no longer have to pay attention to multiple payment deadlines and different interest rates. You will just make a single payment, and this will be distributed to your creditors. Assuming you work with a reputable debt consolidation company, the theory is you will have a lower interest rate, which gives you more money to spend on necessities during the month. We have never seen this work with any company that is based over the internet or unsolicited phone calls. The only legitimate company we have seen in this regard is Montgomery Consumer Credit Counseling. Even then, the payments are normally about the same as the payments prior to entering the plan but the lower interest rate can help pay some debts off more quickly. Beware that many creditors do not participate and most people discover they have no legal protection once they are sued by the creditor who they assumed had accepted the payment plan.
On the other hand, some debt consolidation requires you to pledge a home or vehicle as collateral. If you do not make the monthly payments, you can lose your home or vehicle. Similarly, a default can result in a credit union repossessing your car if you default under a cross-collateralization clause. Some debt consolidation loans give you a lower monthly payment and lower interest rate, but the repayment period is extended, which means you may ultimately wind up owing more than you would have under the original loan agreements. Moreover, any money you save can be taxed by the IRS.
For some debtors, bankruptcy is a better option. In a Chapter 13 bankruptcy, you restructure your debts through a debt repayment plan. Like debt consolidation, you make a single payment, but you do not need to pay interest, and an automatic stay stops creditors and collectors from suing you or calling repetitively or garnishing your wages. If you file for Chapter 7, you will be able to eliminate unsecured debt, and you will not have to pay anything back.
On average, our clients are experiencing a 45-point increase in their credit score within one year after filing. Many people find this increase in their credit score surprising due to a popular misconception that the opposite is true. Your credit score is largely influenced by your debt-to-income ratio, which looks much better when a bankruptcy reduces your debts. Someone with excellent credit will normally see a decrease in their score, while someone with poor credit will see significant improvement within one year. In a Chapter 7 bankruptcy, you may have to surrender certain possessions that are not exempted under this process, although such is not normally the case.
You can start over fresh with bankruptcy, but the costs of a clean slate may be unnecessarily high for some debtors. At Grainger Legal Services, our Alabama bankruptcy attorneys can advise people on whether Chapter 7, Chapter 13, or one of the many alternatives to bankruptcy suits their specific needs. We have offices in Montgomery, Prattville, and Troy. Call us at (334) 260-0500 or contact us online to schedule a free consultation.