When all the money you make each month isn’t enough to pay your minimum payments it can be quite disheartening. Your thoughts may drift into the worlds of bankruptcy and debt settlement. I remember in the summer of 2005 not being able to make ends meet and not sleeping well. My phone was ringing off the hook from bill collectors and I was extremely stressed out. It really seemed as though there was no way out. The real problem was that I didn’t know what my options were. This article is full of useful information about the consequences of defaulting on your creditors. So take your time to review this post and feel free to add your comments at the end. See also DebtPrison related article How to settle your debts on your own.
Bankruptcy is a permanent negative mark on your credit file
Bankruptcy is bad for a variety of reasons. First and foremost, it means your going back on your word. If you aren’t the type of person that is interested in honoring your commitments then this article isn’t for you. By all means – go ahead and give your money to some lawyers. But if honoring your word means something to you, then relax and take a deep breath, everything is going to be O.K.
If you need immediate advice on bankruptcy or debt settlement, then please call 877-231-4384. This is a toll-free number. A representative will help evaluate your financial problems for free and can even connect you with a local attorney. You can also fill out our free bankruptcy evaluation form by clicking here.
Bankruptcy is a life changing experience. You’ve seen the loan applications that have that question ‘Have you ever filed bankruptcy?’ It doesn’t specify in the last seven years. So once you go down that road, you’re branded as untrustworthy or High Risk. Don’t get me wrong. Eventually your credit score will improve and you’ll be able to borrow money again. But bankruptcy should be the last option – only after you’ve honestly tried every other avenue and failed.
Bankruptcy lawyers represent you in bankruptcy court. Since these lawyers make a profit off your financial crisis, I would recommend speaking to them last.
A judge could very well confiscate all your assets and sell them, giving the cash to your debtors. If you stopped frivolous spending, worked two jobs, and sold everything you didn’t need – could you avoid bankruptcy? If the answer is yes then it’s time to put together a plan. Becoming financially disciplined is a skill that once mastered, keeps your life on the right financial track. Avoiding bankruptcy and working hard to overcome your debt will have a positive effect on your life, financially and emotionally. See also DebtPrison related article How to deal with collection agencies.
Debt settlement strategy – avoid third parties
Perhaps you’ve seen the commercials on television. Some nice financial do-gooders who are going to help you lower your monthly note while at the same time settling your credit card debts for a fraction of what you owe. It seems like such a wonderful idea. Basic premise: you save money while sticking it to those BMW driving Bank CEO’s. I have to give this subject some extra attention. Bankruptcy and settling your credit card debt is a large part of the problem driving today’s high credit card rates. After I failed to pay Bank of America and Citibank for three consecutive months my interest rate went from 21% up to 32.6%. This is called the default rate and is applied to a customer when they become High Risk.
Believe me I was angry and wrote them letters requesting it be lowered. Of course they didn’t and looking back I don’t blame them. Basically the Bank is using me to settle the score against the people that do in fact file bankruptcy or settle their accounts. Since they are losing money by loaning to those High Risk customers they need to recoup it from others. Hence 32.6% default rate.
The Banking sector in today’s market is without a doubt one of the most profitable endeavors. American culture has convinced everyone that they need anything they want and now (when they can’t afford it) instead of later (when they could afford it). Banks are not all bad. They keep this monster machine rolling. People can build houses and buy cars because of banks. Our economy is dependent upon them and they should be profitable. This doesn’t make me feel all good inside either but it’s still what makes the cookie crumble. The point is that this default rate is necessary. Not to mention that it wouldn’t be my problem if I had been more responsible in the first place.
The problem with using the financial do-gooders is that they fail to mention the negative consequences of using their service. Back in the summer of 2005 I called one of these companies I had seen advertised. A person answered the phone and asked me some questions about my income and my bills. In three minutes she had concluded that I was eligible to be in their program. It happened so fast I felt like I was another victim of a high pressure sales presentation.
Under the guidance of their opportunistic lawyers I would pay their company $600 per month. Of this $600 they would keep $60 for themselves (handling fees?) and the rest would go into an account which they would watch over for me. When this account had reached a certain amount, they would make the first Bank an offer. For example, I owed Bank of America $6,800. Once my account has about $3,500 they make Bank of America an offer to settle at roughly 50%. It becomes a bargaining game as Bank of America shoots for a higher percentage.
These lawyers (negotiating on my behalf), tell Bank of America that if they don’t take the offer then this money will be offered to Citibank as a settlement and they might accept it. This means that Bank of America may be looking at another year or two before they get another offer from me the client! If you are like me then you’re probably asking yourself Why can’t I just do this myself and keep my money? You can.
What’s bad about this is that you’re now giving money to a third party that could be applied to your debts. And this third party now has ALL of your money. Does that sound like a good idea to you – someone else having all your money? In the package that these lawyers sent to me, it described the manner in which I could confiscate my funds away from them, if in the course of things, I changed my mind and wanted my money back. From what I can remember reading it didn’t sound like fun.
Also, while all of this is going on, your credit history and score suffers. And even once the balances are settled, you’re still left with a gaping hole in your credit report. This means that on future loans you’ll pay a higher interest rate. Paying a higher interest rate on future loans will prove more costly than paying what you owe and salvaging your credit now. Not to mention, while your money is growing in their account the interest and fees are still being charged to the money you owe Bank of America.
So what started out as $6,800 one year later is now $10,220! Once I received this packet of information (which I paid $50.00 for) I realized there was even more for me to worry about. It stated that monies I owed Citibank could not be settled – so I would still owe Citibank the full amount. It was actually an AT&T Universal credit card. But as it turns out, Citibank had bought them out some time ago. These professors of law and good will didn’t tell me this – I found out about it on my own.
That was enough for me! No third parties. They make your life worse while profiting off your ignorance. My advice is to fight for your credit. Don’t take the easy way out. Busting your tail to pay off ALL of your debts might be tough, but you’ll salvage your integrity and your credit report. Hope this article helped.
Related Articles
* How to settle your debts on your own
* Can you go to jail for not paying your debts?
* How to deal with collection agencies
* Sample Debt Validation Letter
* Information on Credit Card Balance Transfers
* How I Escaped Credit Card Debt
If you are referring to me… I didn’t settle any of my debts. I paid all of them back in full.
You talk about honoring commitments as a reason not to file bankruptcy, yet you “settled” your debts, which means you didn’t pay everything you owed. How is that different? Stop seeing the world through the eyes of a child, things aren’t black and white.
Stop propagating myths and scaring people–who are already in a enough of a struggle! There are laws that protect people from a “judge confiscat[ing] all your assets and sell[ing] them, giving the cash to your debtors.” Most people will be able to keep their assets if they are exempt.
So what if the home owner filed bankruptcy and the attorney never comleted the filing with having the debts removed and all the debt was attached to the real estate “house” and the seller is tring to sell the house in a short sale and since all 4 liens are on title the bank won’t clear title.?
Bank of america
City Bank
are 2 that are attached to the title and they have been there evidently for 8 years.
A bank can change the rules because its in the contract that they can change the rules. Don’t like those rules? Don’t sign the contract… we’d all be much better off if we didn’t sign these contracts and take on debt we have no business accepting in the first place.
Borrowers that cannot pay back loans are NOT trustworthy to a lending institution.
Would you loan money again, if you were in the business of loaning money, to someone whom already didn’t pay you for the last money you loaned them?
And for people who are not comfortable negotiating with collection agencies…. there are debt settlement companies out there that provide such a service for you.
I get pretty tired of people complaining about getting ripped off because you can do things yourself. Of course you can! You can change your car’s oil by yourself, paint your house by yourself, represent yourself in court, the list goes on. But is it best? That depends. There’s a reason one pays a professional to handle some things. Maybe it’s because one values their time more than the cost of service, or maybe hiring a professional makes sense because they have more knowledge and experience. You can’t really harp on an industry with flimsy facts about being able to do everything yourself. And where is the unbridled love for the banks coming from? You seem pretty stern about people not being able to pay back loans. Fraudulent misuse, I can understand. But what about unforeseen circumstances like job loss and sickness that puts a borrower in a situation where there is no option? You paint the picture that borrowers that can’t pay back loans are untrustworthy, yet make no mention of the banks that increase interest rates and cut limits to borrowers even if they’ve done NOTHING to warrant these actions. Credit card companies can basically change the rules. Fees, penalties, limits, rates, they can make one-sided changes to their best interest. Are credit card companies also not subject to keep their word based on the original agreement? Why can they change the rules, while the borrowers simply have to abide by them no questions asked? You’re an idiot.
The higher APR I am referring to is the interest rate you will get on FUTURE loans if your debt has been settled or if you file bankruptcy. Sorry, but I still don’t see how using a debt settlement company is good, unless the person in debt does not understand how the game works… and would rather outsource the negotiations for a fee.
Here’s a real story from one of my readers who has dealt with two different debt settlement companies, read for yourself.
http://debtprison.net/wordpress/134/tell-debt-settlement-cos-to-kiss-your-ass/
well first of all, if your APR already went up to 32%, then how can you be talking about having a HIGHER APR in the future because of settlement on your credit? You are already at the highest. Second, the reason these companies set up an escrow account for you that should be FDIC secured is so your funds are there each month, accumulating, and nobody can touch them. All legitimate debt settlement companies will make sure that you have access to that account and can withdraw funds any time you want if you decide to cancel.If this option has not been introduced to you, then maybe you should have done a better research when choosing a company, cause you cant hold the entire industry responsible because YOU made a bad choice. Scammers are everywhere, but it is YOUR responsibility to find a right company that you can trust instead of blaming it on the entire industry if you get burned. If you go to Walmart and come accross a rude cashier, will you say that ALL Walmart stores suck? No, cause thats not reasonable. Same here…If you got a letter in the mail from the bank saying they prefer to deal with you directly and won’t work with a third party, please understand that they are trying to discourage you and people like you because they are losing money on settlements and its nothing but a scare tactic. Banks KNOW that you are emotionally attached to your debt and you feel responsible for it, thats why they try their best to lead you into believing that your only option is do-it-yourself approach, cause you are more likely to take the offer that might not be the best in your case, no matter how tough you think you are. Its a multibillion dollar industry, those folks know what they are doing. If they didnt, they would have gone bankrupt. So if they made you believe that your only option is to work with them directly and you quit the program after several motnhs of making payments–it is the proof of how good they are. Even if it IS a bank’s policy not to work with third parties, when the account charges off, they will sell it to collector who will work with anyone that pays them money. And lets face it, you might be sitting there thinking how you dont want your accounts to go to collections, oh well, some of them will, cause if you had the money to pay all of them off in 3-6 motnhs, you would never get behind on your bills in the first place, so these companies are doing exatcly what is logical—if one bank refuses to work with them right now, they will offer the money to the one that will, and settle the first one when negotiations can be made. Now companies that know what they are doing and have good arbitrators dont have to wait till you accumulate 50% of what you owe, they will make arrangements with the bank in several installemnts, and it does not have to be 50% either, most of the time they are able to settle with some creditors for less, some for more, when they average it out, it comes out to what they quoted you.
If you are complaining about your credit score going down—what do you need it for right now? to get yourself further in debt??? or to get more credit crads in the future, so you could end up in the same situation again??? Yeah, yeah, yeah, right now you might say that in the future the economy will get better, you will have a job, blah blah blah, but could you see THIS one coming? no! so how will you know that in the future it will be all smooth? wishful thinking is good for you, but you also have to be realistic and think of all possible options. If you will settle them yourself, they will still be settled, your credit score will still drop for missing payments when you settle on your own, but it will go up again once the accounts are paid off, but i guess when you are with a company you just have some people to blaim it on to make yourself feel better, huh?