I’ve discussed this issue in the past 203493 times, but here it is again. Nice client comes in. Nice client sits down. Nice client wants to talk “debt settlement.” I sigh, knowing full well where this conversation will go. I’ve filed hundreds of Bankruptcy cases in New York and I can tell you that many of the cases started along the same lines. People want to settle with their creditors and pay them money that they don’t have because they don’t know what else to do. So, client tells me she’s about $75,000 in debt or so. Says she wants to settle. Works full time but doesn’t make much and has a few kids she has to take care of. Oh, and she has no money left at the end of the month. What’s more? The client has already paid close to 10K to her creditors to try and settle in the past year!!! I don’t know what more I can say in situations like this other than to tell you all to take a step back before you cut a check to Rubin and Rothman, or Mel S. Harris and Associates or any of the other firms. It doesn’t make financial sense. Some concerns most people have and reasons why they plop down thousands to a never ending hole of creditors:
1. ” Filing Bankruptcy will ruin my credit for 10 years. My neighbor told me.” Your neighbor is a liar and is jealous of the view from your apartment and shes much too loud on the phone. Bankruptcy will IMPROVE your credit almost overnight. You heard me. Improve. As in get better. If you’re tens of thousands in debt and missing payments, trust me, your check to settle Debt #1 out of 15 is not going to do much for your credit. Bankruptcy, on the other hand, can greatly improve something called your Debt/Income ratio, which effectively comprises about 35-40% of your score.
2. ”They’ll take my couch if I file Bankruptcy. They’ll come in and go through my stuff” Stop this. Who will? The US Marshalls? They want your Levitz couch from 2002? Big market out there for your coffee tables? In all seriousness there are enough Bankruptcy exemptions as of January 2011, that we can confidently state that you likely wont have any issue with used furniture, etc. It just doesn’t really happen.
3. ”I own a home and Im scared” If we file under the New York Exemptions, you’ve got $150,000 in equity you can protect in your home. $300,000 if both you and your spouse are on the deed of the home and you’re both filing. Next.
4. “It feels weird to file Bankruptcy.” I know, it feels weird to get a Mud and Cucumber facial too, but you feel like a million bucks at the end (not that I know….seriously not that I know). I know it feels weird, and you don’t want to do it, but you do it because you want to open up a bank account again and not be scared that someone is going to freeze it or garnish your wages. You do it because you want to sleep at night and not worry about $30k in debt growing at 30% interest. You did it because you want a fresh start. You feel great when the process is over. Don’t believe me? Ask anyone who has filed (and had a good lawyer)
The lesson here is to stop throwing money you don’t have at creditors who aren’t going to go away. If your house is on fire, are you going to get cups and fill them with water and throw them at the carpet? Same thing here. If you’re thousands in debt, settling with one creditor and hoping you’ll have enough to settle with the others is a losing proposition. There are other, less expensive, faster, more efficient, painless ways to get through this mess. Before you send in another check, make sure you speak with a Chapter 7 Bankruptcy lawyer.
