IF you are doing your best to pay your debts but simply do not have enough income to pay what your creditors are demanding from you, it may just be a matter of time before you face harsh collection actions. One legal option that most people don’t know about is debt consolidation through Chapter 13 of the bankruptcy code. It is not the same as Chapter 7 (wiping out debts) as I will explain in this article.
You may have heard the term “debt consolidation” many times. A lot of people seem to get confused about the meaning of this term and in this article, I would like to clarify what it means as it relates to solving debt problems.
First, there is the “debt consolidation” loan. This type of debt consolidation involves going to a bank or credit union and borrowing a sufficient amount to pay off all your existing debts so that you only have one debt payment to make each month. For some people, this may be a good idea if you are paying an interest rate on the loan that is lower than what you are paying on the debts you are consolidating. Apart from the convenience of writing just one check each month instead of ten when you are paying your bills, the obvious benefit here is the potential amount of money you are saving in interest charges over the long haul.
While a consolidation loan may sound like a great idea, the truth is, often it will not resolve your financial hardship. The reason is that it is usually difficult to obtain a low interest rate on your consolidation loan unless you have an excellent credit rating and have something to offer the lender as collateral such as equity in real estate or a car, for example. Lenders with less stringent credit requirements usually charge high interest rates; 21% or higher is not uncommon. And even when credit is excellent, often the interest rate is higher or close to what you are already paying on your other debts.
Secondly, there is “debt consolidation” through a credit counseling agency. There are a handful of such agencies (usually non-profit) who help consumers consolidate bills by working out payment plans for a small fee each month. While this strategy might work in some cases where the monthly payment is affordable, it can only work if all of your creditors agree to your proposed payment plan. Another limitation is that there are certain debts that the agency cannot and will not handle such as IRS taxes, back mortgage payments, judgments or cases where the creditor has initiated a lawsuit or wage garnishment. Lastly, paying your debts through this type of debt consolidation will still be a negative on your credit report because it will be reported as “slow pay”.
The type of debt consolidation we help people obtain is one that eligible individuals may do under Chapter 13 of the Bankruptcy Code. Done correctly, it is the best type of consolidation you will ever find. Chapter 13 allows you to pay back all kinds of debts including the debts I have mentioned above that the credit counseling agencies cannot help you with. On credit card and a majority of your debts, you also pay 0% interest, allowing you to pay off what you owe much faster than any type of debt consolidation.
The greatest benefit of consolidating through Chapter 13 is that you only pay based on what you can afford each month and it is possible to pay creditors only a very small portion of what you owe over a period of 3-5 years. And if you are facing foreclosure of your home, repossession of your car or other property, you can stop the creditor immediately from taking your property once you file for Chapter 13. Once your Chapter 13 payment plan is approved, creditors must accept it. The result: a reduced monthly debt payment which still allows you to live with the other expenses you have- rent or mortgage payments, food, clothing and transportation expenses, etc. If your debt problems have caused you a lot of financial stress, Chapter 13 is often the most effective tool in getting your finances back in order in the shortest time possible because relief is immediate upon filing of the case.
I have helped a lot of individuals and business owners obtain debt relief through Chapter 13. If you would like to find out if this is an option in your situation, I would be glad to talk to you and explore this possibility further. To schedule a free personal consultation, please call the appointment line TOLL FREE AT 1-866-477-7772.) We have offices in Glendale, Cerritos and Valencia
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped thousands of clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1 (866) 477-7772.
