Sometimes bankruptcy is worth considering as an answer to your debt problems. But before coming to that decision, there are other options—one good, one bad—worth exploring.
Here’s a bad option: Ignore your debt. Some people fall into debt and just pretend it’s not there. Others think they can put off creditors and debt collectors indefinitely. From my experience, these aren’t winning strategies.
With most types of debt, such as credit cards, there’s usually a long statute of limitations for a creditor to enforce a debt against someone (e.g. four years in California for open book accounts). This limitation period starts at the time of the most recent charge on a person’s account or the time of his or her last payment, whichever is more recent. If you haven’t used a credit card in, say, 10 years, but you did make a debt payment last year to keep a creditor off your back, what you may not realize is—the limitations period kicked in at the time of that payment, not when you last used it many years ago.
People who don’t know this (or ignore the situation entirely) often end up getting sued, and then having their wages garnished.
The better option, while not for everyone, is debt negotiation. This involves negotiating with creditors or collection agencies to reduce your outstanding debt balance and lower your amount of regular payments. In many cases, if you can claim financial hardship and an inability to pay off your debt, many creditors are willing to accept less than the full balance owed, in order to resolve their debt claim against you. (Basically, the principle is, getting paid something is better than getting paid nothing.) Successful debt negotiating still goes on your credit record as negative debt reporting, but for the most part, it’s a favorable alternative to bankruptcy.
Successful debt negotiations generally result in lower regular payments, no more extra charges (such as late payments or over-the-limit charges for credit cards) and, best of all, an end to frequent and highly unpleasant calls from creditors looking for money.
Debt negotiations don’t necessarily require the services of an attorney, but I believe it’s well worth your time to talk to one before embarking on this course of action. The creditor is not obligated to take part in negotiations, but as I said, most are willing to settle for partial payment, especially if the debt has lain dormant for a long period of time. Additionally, you want to be absolutely sure that your debts, once they’re negotiated, are truly and totally resolved. This means getting something in writing that confirms the debt has been satisfied—and a skilled attorney can make sure this happens for you.
When you make an appointment with an attorney to learn more about this option, be sure to bring all relevant documentation of the debt (including collection notices, financial statements, contact information on creditors and/or collections agencies, etc.). The attorney will consult with you on the best steps to take. If you choose to retain the attorney, he or she will contact the creditor on your behalf and begin negotiations to resolve your debt issues.
Are you in need of legal counseling for bankruptcy or debt issues? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.