Filing for bankruptcy may be a strong tool to reset your financial position and get creditors off your back if you’re drowning in debt. It prevents creditors from using any further collection efforts, such as phone calls, garnishments, lawsuits, mailings, etc. Many debts, such as medical expenses, credit card payments, personal loans, and more, may be discharged in bankruptcy.

If your financial situation is dire, bankruptcy may be possible, albeit you must meet certain requirements. To get out of debt, you need to satisfy certain requirements; if you don’t, you may need to look into other options.

SEEK TO IMPROVE YOUR CONTRACT’S TERMS VIA NEGOTIATION

Unsecured creditors need a repayment. Nonetheless, they may be willing to accommodate your needs if you phone them. Credit card companies and other lenders could be willing to cut your interest rates if you ask nicely.

Tips for settling on more favorable repayment terms:

• Familiarize yourself with the terms of your credit card(s) and loan(s), such as the grace period, the monthly due date, and the amount (s).
• Do your homework. Do other credit cards offer lower interest rates? Please note them and be ready to use their advantageous terms as a negotiating chip in future discussions.
• The bank could temporarily reduce your interest rate if you explain your present financial situation (be prepared to record your struggle and explain if your budget crisis is short or long-term) and agree to a repayment plan (make sure it’s reasonable).

If you still have a solid credit score that shows you’re a good risk, lenders may be more willing to grant your requests.

If you negotiate a lower rate and then fail to live up to your half of the deal, you may expect to have the original, much higher charges applied. Take advantage of any payment plan your credit card provider offers and make your payments on time and in full.

PROTECT YOURSELF AGAINST HARASSMENT WHILE SERVICING DEBTS

You may be able to activate or execute consumer protection legislation that would safeguard your rights.

The Consumer Credit Protection Act (CCPA) was first enacted to safeguard consumers’ interests in the credit industry in the late 1960s, and it has since undergone many revisions.

Debt collectors have a responsibility, but they are not justified in being rude or aggressive in the process. Consumers are safeguarded against abusive and harassing debt collectors by the federal Fair Debt Collections Practices Act (FDCPA), supported by some state laws.

Legally, creditors can’t do the following things:

• Making repeated calls within a short time frame (more than seven calls in seven days).
• Using a public social media platform to communicate with you.
• Communicating with you after you’ve asked them to stop.

There are restrictions on when creditors may contact you, the language they can use, the threats they can make, and the information they can make public. They cannot threaten you with arrest or force you to pay for debts you do not owe.

PAY OFF YOUR DEBTS WITH SAVINGS

We could all use a nest egg, a stash of cash we save for “just in case.” Then then, crippling debt is a “just in case” scenario.

By mid-2022, savings accounts had begun to yield an interest rate of only 1%, which is negligible. Rates on credit cards typically range between 16 and 30 % annually. When the interest you pay on your debts exceeds the interest you receive on your savings, it makes more financial sense to use your resources to reduce or eliminate your debts.

If filing for bankruptcy is something you’re considering, your debt is already at crisis proportions. If you are working and in a position to do so, then it is the moment to tap into your emergency savings.

Pertinent questions to ask yourself: 

• How much interest am I getting on my savings?
• How much interest am I paying on my credit card balances?
• Is my income secure enough that I could risk using some of my savings to make debt payments?
• How far along would I be if I renegotiated my credit card rates and made partial payments from my savings?

Honest evaluations may provide useful insights.

MAKE USE OF YOUR 401(K) OR OTHER RETIREMENT SAVINGS

Anyone with a healthy 401(k) balance might use a loan from the plan to consolidate their debts. Think this choice over thoroughly. The option is often regarded as one of the worst ways to deal with debt. Those who are on the cusp of retirement should avoid doing this. If you’re still young, you have plenty of time to compensate for lost funds.

Worrying about your credit score while taking out a 401(k) loan is unnecessary. It’s also a simple procedure. You are obligated to pay back the money you borrowed within a maximum of five years. When you fall behind on your loan payments, the borrowed money is treated as a distribution and subject to income tax. Depending on your age, it may also be illegal. The loan is due in full within 90 days if you leave your employment. So, please give it some serious consideration.

As a general rule, Individual Retirement Account (IRA) cannot be used for financial needs. However, if you can refund the money within 60 days, you may withdraw from your IRA. If you have credit card debt and don’t have the cash to pay it off, you won’t have any money left over to repay the IRA, making this a bad alternative.

RESTRUCTURE OR REFINANCE YOUR MORTGAGE

This is a significant expense if you own a home and are still making mortgage payments. You should talk to your lender about creating a new payment plan if lowering your monthly mortgage payment would keep you out of bankruptcy. They may even be willing to work with you to create a short-term repayment plan until you get your financial situation under control.

You might also consider filing for a new mortgage to get a better rate and a longer term. Since a bank provides a fresh loan, solid credit history is often required to pursue this course of action.

REDUCING WASTEFUL EXPENDITURES

Making a budget is a good place to start when you don’t know where you are financially. In most cases, expenses may be reduced by an honest evaluation of expenditure. Construct a detailed, trustworthy budget. Cutting costs where you can get you off to a good start.

Going out to restaurants twice a week is not a good idea if you have a lot of debt. Streaming TV might save you money and the need for a pricey cable package. Competitive and often inexpensive cell phone service is readily available. Saving money on the Internet is possible. It’s far more affordable to make your meal at home than buy it from Starbucks.

CONSIDER DEBT MANAGEMENT

Talking to a credit counsellor at a nonprofit organization might help you figure out a strategy for dealing with your debt. This strategy will cut your credit card interest rate to roughly 8% and allow you three to five years to repay the loan. The savings may be substantial, and applying them to the debt can hasten its elimination.

There are several factors to think about. Swindlers will attempt to take advantage of you in practically any financial transaction nowadays. Verify that the organization you choose to work with is genuine. Payments under these programs must also be made in full on a monthly basis.

It is the law that nonprofit counsellors provide you with an unbiased recommendation. Debt management may be a viable option if you don’t meet the criteria for bankruptcy.

SHOULD YOU GO WITH DEBT SETTLEMENT?

An individual’s debts may be settled for less than what is due. After two or three years of saving, a lump sum is paid. Debt settlement involves talking to creditors and working out an arrangement wherein some, or all of the debt is paid off for less than is due.

Great news if the creditor agrees! However, they are not obliged to accept, but some really do.

Another drawback is that interest and late penalties add to the debt as you save. Creditor talks are postponed until after the objective savings amount has been reached.

It would be best to consider the negative consequences of choosing debt settlement. It has the potential to drop your credit score by 100–200 points and leave a lasting impression (up to seven years).

CONSIDER PAYMENT PLANS UNDER CHAPTER 13

Nearly two-thirds of all bankruptcies are filed under Chapter 7, making it the most common type of bankruptcy. Although if you don’t meet the requirements for Chapter 7, Chapter 13 may be an option.

Payment plans under Chapter 13 often last between three and five years

In Chapter 13, bankruptcy, a person’s debts are reorganized. Filing a lawsuit on or after April 1, 2022, will subject you to a cap of $465,275 in unsecured debt and $1,395,875 in secured debt.

If your income is substantial enough and you have valuable assets that you wish to protect, Chapter 13 may be the best option for you.

Due to the complexity of Chapter 13, it is nearly always necessary to hire an attorney. However, the immediate financial strain is reduced since many attorneys’ costs are included in the payment plan.

DO NOTHING

It’s an unusual choice, but it may be made if one has neither a lot of money nor much real estate to call their own. It’s possible no one can pass judgment on you. If your debtor has no assets, they may not bother filing a lawsuit. It is also against the law for a creditor to seize food, housing, medical care, unemployment benefits, or clothes. Any savings achieved may be used toward paying down the debt.

CONSULT AN EXPERT

Visiting an expert is a good idea if you have mounting debt but don’t meet the criteria for bankruptcy. These consultations include credit counselling to assist you in evaluating your financial situation, bills, and debt relief possibilities. They’ll show you the optimal approach and explain its ideal for your circumstances.

Johnston Tomei Lenczycki & Goldberg LLC is a full-service law firm that assists clients with various issues, including bankruptcy. Cook County, Kendall County, Will County, and Boone County are just a few of the many counties in the Chicago metropolitan region that we are pleased to serve. Call us today to discuss a complimentary consultation.