A Guide to Frequently Asked Questions
Many people find themselves in a situation of overwhelming debt, and they wonder what options they have to deal with it. The first thing that comes to mind when faced with overwhelming debt is bankruptcy. Another option may be debt negation or consolidation. This guide will give you a quick overview of the different options available, their benefits and drawbacks.
The idea behind debt consolidation is to borrow money to pay off all or part of your debts, and then repay this consolidation loan. It is advertised as a way to replace multiple payments by a single one and possibly reduce the interest rate for a portion of debt.
The major drawback is that you agree to pay 100% of the debt that your creditors claim you are owed, with ongoing interest. This would include repaying money owed to creditors in interest accrued prior to taking out the new loan. This is not an option for many people who are struggling with debt.
Conversely the idea behind debt settlement (also known as debt relief) is that it limits the amount you pay to creditors by negotiating a lower total amount you owe. You then repay this new amount to your creditors over a period of months or even years. This process can cause a number issues.
Firstly debt negation is entirely voluntary for creditors. This means that they don’t have to do it if the creditor doesn’t want to negotiate or settle. Debt negation is also done individually with each creditor, so there are no set deadlines for when debts will be resolved. With debt negotiation, you agree to repay your creditors a significant portion of what they claim you owe, often in unmanageable monthly payments. This is also not an option for many people who are struggling with overwhelming debt.
Bankruptcy is a completely different option. In contrast to debt negotiation or consolidation, bankruptcy is a legal process that gives you protection from the courts as long as it is being pursued. All of your creditors are required to participate. The bankruptcy process requires creditors to participate, unlike debt negotiation, where they can refuse to negotiate. The discharge of debt you receive at bankruptcy’s end is a protection against any future collection of debts.
Bankruptcy allows you to eliminate your debts with a limited payment to creditors, or in some cases, no payment. If you make a payment through bankruptcy to your unsecured creditors, it will be a very small fraction of what is owed. This allows you to eliminate debts for pennies. You can also arrange payments in bankruptcy so that they are tailored to your budget and financial situation, such as with a Chapter 13 bankruptcy. In speaking with your bankruptcy attorney, they will advise you on how different paths in the bankruptcy process can be specifically tailored to fit your unique circumstances and needs.
Lastly, bankruptcy offers you many tools, opportunities, and protections only available through the bankruptcy process. There are many resources that can be used to ensure that you get the most out of your bankruptcy filing, whether it is the automatic stay which prevents creditors from garnishing or initiating new collection actions, or the Chapter 13 plan which can help you catch-up on your mortgage or vehicle payment. Call Now For A Free Session Of Strategy With A MN Attorney
If your debt is overwhelming and you’re wondering how to resolve the situation, feel free to give us a call! Our highly-experienced staff would be delighted to speak with about the resources that are available through bankruptcy. When the time is right, or when you are ready, please don’t hesitate to contact Minnesota’s most kind and helpful bankruptcy law firm by going now to
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