Waltzer Law Group

If you are able to pay off all your debt, then you probably are not reading this. However, you can imagine that many of my thousands of free bankruptcy consultations are with people who COULD pay off their debt but the cost of doing so would be too great on their lives, health and families.

So, how hard should we fight to pay off our debts? This is a very personal question. Most people would not sell an organ or prostitute themselves to repay their debts. However, should we work 90 hours a week and neglect our families and injure our health? This is the fuzzy line.

The rule I tell my clients is that if they are able to repay their debts in three years, without sacrificing nutrition, health-care, and the bare minimum rest and family time needed to stay healthy; they should fight through and avoid bankruptcy. Just make sure your three year plan is realistic.

However, if paying your debts would take you 10 years or require you to work yourself sick with two or three jobs, or neglect your family, you should let it go and file bankruptcy. The United States Congress believes as much. It is bad for society, much more expensive than the cost of your current debts, if your kids become problematic because you are not around. Don’t forget that it costs society hundreds of thousands of dollars if you get sick and can not work, or get a stress related health problem and end up in the hospital.

This is why, you are encouraged to take a fresh start rather than work yourself to ruin.

I have had people come in for their free bankruptcy consultations who were working three jobs, sometimes single mothers, because they didn’t want to file bankruptcy. Usually they had some great misconception about bankruptcy (see “Bankruptcy Myths“). Years and dollars were wasted for nothing.

If you are working just to pay interest on your debt than something needs to be fixed. You need help. A knowledgeable and experienced bankruptcy lawyer can tell you whether bankruptcy is appropriate for you. Don’t lose your time. Learn your options now.

When considering bankruptcy and bankruptcy alternatives, one of the biggest questions people ask me is “what about my credit score?” and “How will bankruptcy help improve my credit score?”. Read on to learn about what a credit score is and how different bankruptcy alternatives will impact it.

What is a credit score?
The credit score is a number given to you by a company that rates you as a borrower. In other words, when you want to borrow money, for a car, house, or just a loan, the lender will look to your credit score to see how risky it is to lend you money. Three big companies that do this are Experian, Equifax and Transunion. Your credit score can be seen in a credit report from any or all of these companies.

A credit score is one of many factors that go into a lenders decision to lend money and what interest rate to give you. However, generally speaking it works like this:

If the credit score is low, (this is bad credit) it indicates that it is risky to lend you money. A lender will not give the loan, or the lender will give it at a very high interest rate.

If the score is high, (this is good credit) it indicates that it is NOT RISKY to lend you money, (because you have a good history of repaying all your loans on time). The lender will give you money at a low interest rate.

Most people can always get a loan. The question is: What interest rate will you pay? Getting a high-interest loan is usually a very bad idea. That is why having a good credit score is so valuable.

High credit score is good (700 and up is great). Low credit score is bad (below 500 is terrible).

So, how do the bankruptcy alternatives when it comes to credit score?

Bankruptcy Alternative Credit Score Comparison.
This Credit Score Comparison Chart illustrates the impact of different debt solutions on your credit score over a 36 month (three year) period.

There are three assumptions here.

1. Though it is usually not the case, this chart compares what would happen to a credit score assuming you started four strategies on the first month you realized you could not pay your debts.
2. It is assumed that the debtor in this example does his best to restore his credit.
3. This chart assumes the debt negotiation candidate was able to settle his debts in 30 months (2.5 years). This is very optimistic.

Three Year Credit Score Comparison Chart (Who wins the race to excellent credit?)

All, how nice the sound of being judgment proof. It is the ultimate “nah nah nah nah nah” on your creditor. You do nothing at all and they are helpless to retaliate. You don’t need a bankruptcy lawyer, you don’t need debt settlement. You just sit back and laugh.

But is it really so easy?

Being Judgment Proof means that even if someone sued you, won the law suit and got a judgment against you, they would have nothing to take from you. Thus, the judgment would be totally meaningless.

This situation applies to people with no income (other than perhaps social security), no assets, and no plans to have income or assets in the future.

Oh, there is one more thing; you probably should not have a phone. Even if the creditor can not take your money, freeze your bank account or do anything else, one thing the creditor can do is harass. Creditors will call you day and night. You will change your number, they will find it. They will call your family, your neighbors and it will not be fun.

Judgment proof people often hire me to do bankruptcy after years of creditor-silence. The creditors seem to disappear for years and then “BAM!” its calls day and night. The calls drive people into my office for chapter 7 bankruptcy. Usually, a chapter 7 bankruptcy is very inexpensive for a judgment proof person. It is certainly worth being free of creditor headaches. But the calls are not the only concern.

The Story of Sam

Recently, a gentleman named Sam who was 72 years old (and quite fit) came to my office. He was a good man, worked hard all his life and ran into some tough times later in his years. He had about $10,000 of credit card debt when he retired 8 years ago. A bankruptcy lawyer in New Jersey who probably thought it was smart advice at the time, told Sam that he was Judgment Proof, and to ignore the debt. Sam listened.

Sam enjoyed being judgment proof for 8 years and for most of the 8 years the creditors were silent. Suddenly, last year Sam’s sister passed away. Sam received a $15,000 check in his account from his sister’s estate. He didn’t even know his sister had $15,000! He was the last remaining family member so the money went to him. Sam was delighted.

He got the money and spent about $4,000. If was HUGE for him. He got a better ear piece, traveled a bit, caught up on some bills.

Suddenly, his account was frozen. His old $10,000 debt was now a judgment for $28,000!

Bankruptcy could stop the bank freeze and get the money but there was now another problem. In New York Bankruptcy Law (where Sam now lived) you can only have $2500 of cash. The rest must go to your creditors. No matter what, the most money Sam could keep would be $2500. His money was gone.

Everyone in my office loved Sam and it broke our hearts that there was nothing we could do. If Sam had only dealt with his debt 8 years ago, this never would have happened. You just don’t know what will come up. It is always better to eliminate debt when you can than to put it off to the future.

One thing that a bankruptcy lawyer, debt settlement guy and a debt consolidation agent can all agree upon is that the risks of not doing anything are more terrible than you think. My firm does all of these things and we are constantly telling people, even if you don’t choose us, just don’t do nothing. It is the worst.

Imagine that you owe $20,000 of debt on credit cards and you realize you just can’t make a payment (many of my clients owe much more, even hundreds of thousands and millions of dollars).

If you ignore the problem for 1 year, with compound interest you will owe close to $30,000. If you ignore the problem for 2 years, you will owe close to $40,000.

If you just make minimum payments for a year or two it is not much better. Your balance might not grow, but you will be paying thousands of dollars and going nowhere.

Of course if you are missing payments, you will be sued, garnished and have your bank accounts frozen.

An interesting thing is that credit score is like a bone. If a healthy bone breaks, it recovers much faster. If you have good credit and realize that you can’t pay your debt, and file bankruptcy right away, your credit will recover much faster than if you miss payments for six months and file bankruptcy.

Why? Because bankruptcy is better than bankruptcy + missed payments. Everything counts!

But that is not the biggest problem with doing nothing.
The biggest problem is opportunity cost.

Opportunity Cost is the opportunity and investment you COULD have done if you were not paying your minimum payments, or ignoring your debts.

For the year you struggled, you could have had zero stress if you had dealt with the problem. That is your health, possibly years of your life. Here are some other things that people miss while they are wrestling with debt and not getting help.
-More time with family
-More energy to move forward and make money!

For the money you paid in a hopeless effort to climb out of debt (probably thousands of dollars) you could have:
-advanced your skills with education,
-started a college fund for your child,
-taken much needed vacation!!

Just the stress factor of the weight of an unmanageable debt is too much to bear.

Please, do something. Call any of the Waltzer Law Group attorneys for a free consultation. You will immediately feel better.

Debt Management Planning is a unique service that Waltzer Law Group is proud to offer. We are the first law firm to describe and provide this service the way we do.

When Bankruptcy is not best for my clients, sometimes all my client needs is a little coaching.

Debt Management Planning is not just debt consolidation. We get to the root of the problem and look at your entire situation. We consider your household income, the likelihood that it will go up or down. The household expenses and the likelihood that they will go, unfortunately, up.

Our goals are not just to provide an ‘isolated service’ to our clients. We want to help them fix their debt-cycles. Even if I help a client through bankruptcy, what good is it if the client has a budget that puts him in debt again three years later? We try to stop that cycle and fix the broken budget. There is always a way. You should not expect to do it alone. Even the top CEOs of the top companies in the world will tell you that they get advice and help when facing their own finances.

We do this automatically with our bankruptcy clients. However, for the non-bankruptcy client, this service is equally helpful.

If you need a Debt Management Plan, an expert attorney will really spend time with you helping you to budget and plan and create a plan that eliminates your debt.

Sometimes even a person who is knowledgeable and experienced about financial management needs to hear what he or she knows from a trusted advisor. It is like the great accountant who doesn’t file his own taxes on time. Whatever your challenge, we are here for you. I am personally here for you.

Debt consolidation is when you hire a company to manage your debts for you. You make one payment every month to that company. The company pays your various creditors.

This has some similarity to Chapter 13 bankruptcy, but it is not a bankruptcy. Because it is not a bankruptcy, the court does not monitor the repayment plans and protect you from creditor law suits and garnishments during the repayment period. Finding a safe and honest debt consolidation company is 100% up to you.

Be Careful!!

There are a great number of scam companies out there that do nothing for you but take your money, waste your time and further destroy your credit.

The best debt consolidation companies will do the following:

1. charge very low fees
2. have realistic repayment plans that you can afford, and recommend bankruptcy if it is best for you.
3. have arrangements with credit card companies where the credit card companies suspend interest and late fees during the repayment period.
4. find a realistic affordable plan for you
5. help you stay on top of your payments with reminders and easy payment methods.

Example of Debt Consolidation:

You owe $5000 to five different cards ($25,000 in total). A good debt consolidation company will negotiate a zero or very low interest rate with all five card companies. You will pay $30,000 over the course of five years. This will include the interest and fees. That payment will cost you $500 per month.

If you miss a payment of a few payments, the deal is off. You are back to square one.

DANGER DANGER DANGER

The danger with debt consolidation (other than scam companies) is that sometimes even the best companies will set up an unrealistic plan for you, a plan that did not consider your real day-to-day expenses, a plan destined to fail.

If you qualify for chapter 7 bankruptcy, you can wipe out the $25,000 instantly. It will cost you MUCH less than debt consolidation and you will be able to recover your good credit comparably as fast. Don’t waste your precious time and money before at least weighing the options with a bankruptcy expert who also knows about debt consolidation.

Make sure to read the comparison of different options on your credit score.

Debt Negotiation, also called Debt Settlement, is when you attempt to negotiate your debts, usually credit cards or judgments, down to a lower amount. So, imagine that you have $20,000 of credit card debt on a Chase Bank Credit Card. You offer Chase Bank $10,000. If they take it, they will mark your account “settled” on your credit report (this is not great for your credit by the way), and you will be done with the debt for that card.

One might ask, “well, why doesn’t everyone do this? Why do people pay 100% of their debt if they could settle and only pay 50%?”

The answer is that in order to get debt settlement, the following things are usually required:

1. You must be very delinquent (usually a minimum of six months behind in your payments. Being a year or more behind in payments is more typical)
2. You must have access to large sums of cash so that you can pay your settlements with one or a few payments.
3. You must be successful in settling with ALL of your big creditors
4. You must be able to tolerate being sued, having wages garnished and having bank accounts frozen during the negotiation period.

The big problem with debt negotiation, the thing that most settlement/negotiation companies don’t want you to know, is that for many people debt settlement is almost as bad or worse for your credit than bankruptcy. Why? Because to get a good settlement you have to stop paying your cards for about a year. During that time you get law suits and judgments. Putting the headache of it all aside, a year or two of missed payments and judgments is more or less as bad for your credit having a bankruptcy. Also consider what happens if you have several cards? One of them settles and the other one does not. Now you still have to file bankruptcy after paying several thousands in settlements to one card. However, the worst risk, and most common failure of debt settlement and debt negotiation is explained below.

Imagine you owe $21,000 of debt to American Express. In order to settle right away you probably need to pay AMEX somewhere between 30% and 60% of what you owe.

30% is $6,300. 60% is $12,600.

If you don’t have a big savings account or a rich relative, you will have to make monthly payments to your debt settlement company (to save up the settlement amount). If you can make monthly payments of $300, it will take you 21 months (almost 2 years) to save up $6200. Even when you settle the debt, your credit will be destroyed because you will not have made payments for two years.

BUT WAIT!!! I still didn’t calculate the FEE you pay to the debt settlement company. They will probably charge you at least $2000, and the first $2000 you pay them with your monthly payments will go right to fees. SO, it will take another 7 months (well over 2 years) before you have enough money just to settle your AMEX card debt.

BUT WAIT AGAIN!!! What about late charges, the 30% interest that the cards charge after you stop making payments? After two years, that $21,000 of debt will become over $35,000 of debt. Now $6200 won’t be enough to settle. You might have to pay over $10,000.

It goes on and on like this. Usually after a year or so, your creditor gets a judgment and garnishes your wages or freezes your bank account. Then, after having paid thousands of dollars to a debt settlement company, you walk into my office and file bankruptcy.

If you had come straight to my office a year before, you would have already begun restoring good credit.

This is why for most people Debt Settlement is a wasteful, painful dead-end street. I do Debt Settlement ONLY when it is necessary and in my client’s best interest. That is very rarely the case.