Did you know there are drawbacks to debt forgiveness in Philadelphia? For example, the creditor may forgive a chunk of your debt. That means federal income taxes could see it as taxable income.
When life throws you a curve ball, knowing where to turn for help can be tricky. When you lose your job, it can seem like the whole world is ending. With bills to pay and a family to feed, losing your job can seem like you’ll lose everything.
The good news is you don’t have to go through it alone. A debt relief attorney or bankruptcy attorney can show you what options are at your disposal.
Want to learn how a qualified attorney can get you back on track? If so, then read on to find out!
How Are Debt Settlements Carried Out?
Debt relief attorneys work with debtors and creditors to reach a compromise. This often involves the attorney paying off the debt in full to the creditor. The attorney may also negotiate a lower interest rate or monthly payment.
Before getting to a lawyer, the parties involved often try to settle out of court. This outcome is wise because going to court could cost both parties more setbacks.
How low can the settlement be? The answer depends on the debt, the creditor’s policies, and the debtor’s ability to pay.
You might be able to pay as low as 10% of the original debt amount. Yet, it could be 50% or higher, too.
The debt payoff often happens in a lump sum or payment plan. That means debt erasure, and it’ll remain forever closed.
Having cash on hand to pay off debt all at once is often the best option. If you choose this method, get the creditor’s documentation of this transaction.
It needs to show when you pay in full and that the case will remain closed. This document can protect you from future litigation.
Make sure you settle the debt fast. The creditors are already wary of debtors who try to weasel their way out of debt. That means the same for those who break the original terms.
Paying off debt is an excellent option if you receive a lump sum. That means money from a tax refund, property sales, or inheritance.
While it’s still possible to settle a debt when a lawsuit starts, it often becomes more difficult. That is because creditors know they have a better bargaining position in negotiations.
What Debts Can You Settle?
The borrower has the legal obligation to repay their entire debt. A debtor can negotiate with the creditor to repay only a part of the debt. But, the creditor doesn’t have to agree to the settlement.
Credit card companies, medical providers, and other creditors can refuse negotiations. What’s more, there are limitations to the types of debts you can settle.
What can you not settle? Secured debts fit that bill. A secured debt uses some form of collateral, like your home or your car, to back up the loan.
Unsecured debts don’t have collateral. These are the debts that you can often settle.
Another example would be credit cards. Secured and unsecured credit cards are available to you. Of course, unsecured is the popular choice.
What about secured credit cards? These would demand a cash deposit equal to your credit limit. So, if you have a $500 credit limit, you must deposit $500 into a savings account.
The deposit acts as collateral for the credit card issuer. In other words, the issuer can take your money if you don’t make your payments.
The most common types of unsecured debt are:
- Medical bills
- Credit card debt
- Personal loans
- Utility bills
If you’re considering settling your debts, know there can be some alarming results. For example, if you pay a debt for less than you owe, the creditor may report it that way.
It’ll show as “settled” or “paid-in-full” on your credit report. These marks on your credit report could harm your credit score.
Why is this not good? It looks terrible because you didn’t repay the entire debt. That could make things difficult if you’re trying to get a loan in the future.
What Does Settlement Do to My Credit Score?
Paying off a debt in full is always the best option for your credit score. That’s because it shows you’re reliable and can repay your debts.
Settling a debt for less than what you owe isn’t as good. It’ll appear on your credit report and could stay there for up to seven years.
What’s more, the debt will still show as unpaid on the credit report of the original creditor. That means you might have one mark on your account, and the creditor will have another.
These marks could make it challenging to approve new lines of credit. Remember that once an account closes, it’ll increase your credit utilization.
Hiring a Debt Relief Attorney
A lost job, mounting medical bills, or other unforeseen events can put you behind on debt payments. When this happens, hiring a debt relief attorney may be necessary.
If you’re struggling with debt, an attorney can help:
- Negotiate with your creditors on your behalf
- Create a repayment plan
- Represent you in court
- File for bankruptcy on your behalf
Sometimes people seek debt settlement companies instead of attorneys. These companies often make promises they can’t keep, like erasing all your debt.
Moreover, these companies often charge high fees, putting you further into debt. If you’re considering using a debt relief company, do your research first.
What Are the Different Types of Bankruptcy?
There are several types of bankruptcy, each with its benefits and drawbacks. The type of bankruptcy you file will depend on your circumstances.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a liquidation bankruptcy. It’s the most common type of bankruptcy.
How do you become eligible? You must complete and pass the means test.
The test uses the median income in your state and compares it to yours. If your income is below the median, you can file for Chapter 7 bankruptcy.
If your income is above the median, you might still be able to file. Still, you’ll have to provide more information about your finances.
Once you file, an automatic stay goes into effect. That means your creditors can’t try to collect on your debts.
A trustee will oversee your case. The trustee’s job is to sell any nonexempt assets you have to pay your creditors.
After your assets get sold, the discharge of your debts will finalize, and you’ll be debt-free.
Chapter 11 Bankruptcy
You can call Chapter 11 bankruptcy a business bankruptcy. It’s for businesses that want to stay open but need relief from their debts.
To file, you’ll need to submit a reorganization plan to the court. This plan will detail how you’ll repay creditors.
Once you file, an automatic stay goes into effect, and you’ll be able to stay in business.
There are some things the debtor will have to report unless the court waives it. These things include:
- A list of all creditors
- A schedule of assets and liabilities
- A statement of your current income and expenses
- A summary of your financial affairs
You’ll also need to file a statement of intention. This document lets the court know if you plan on keeping or giving up your collateral.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy is for family farmers and fishers. It’s like Chapter 13 bankruptcy, but with a few differences.
To qualify, you must have a regular income from farming or fishing. There are monetary debts that the debtors can’t exceed.
For family farmers, the debt limit is $11,097,350. For family fishers, the debt limit is $2,268,550. These total debt limits include secured and unsecured debts.
You’ll also need to file a repayment plan with the court. This plan will last for three to five years and will detail how you’ll repay your debts.
Chapter 13 Bankruptcy
You can call Chapter 13 bankruptcy a wage earner’s plan. It’s for people who have a regular income and want to keep their assets. An example would be your property.
What do you need to qualify? Your debt must be below a specific limit. That limit changes from time to time. It’s currently $465,275 for unsecured debt and $1,395,875 for secured debt.
To file, you’ll need to submit a repayment plan to the court. This plan will last for three to five years and will detail how you’ll repay your debts.
Other Chapter Bankruptcies
There are also chapters 15 and 9. Chapter 15 bankruptcy is for debtors who have assets in many countries.
Chapter 9 bankruptcy is for municipalities, like cities and towns.
These types of bankruptcies are less common, and you might need the help of a bankruptcy attorney to file.
Get a Bankruptcy Attorney Today, Call us at 215-545-0008
Now you know how to settle debts and understand the different types of bankruptcies. You can choose between two types of attorneys.
The first type is a debt relief attorney, who will help you negotiate with your creditors. They’ll try to get you a lower interest rate or waive some fees.
The second type is a bankruptcy attorney, who will help you file for bankruptcy.
Do you need to hire a bankruptcy attorney now? Check out our bankruptcy services in Philadelphia!