How Can I Get My Debt Reduced?

Consumer debt spiked in 2022 to over $16 trillion. Because so many people are stretched so thin, seemingly minor issues, like a temporary income disruption, make a manageable debt load unmanageable. A missed payment or two is almost impossible to make up. Usually, Chapter 7 or Chapter 13 bankruptcy is the best way to keep bill collectors at bay, protect your assets, and get a debt-free fresh start. However, bankruptcy is certainly not the only option.

Regardless of the legal mechanism, a Chicago bankruptcy attorney is committed to making your family’s future brighter by making debt payments manageable. Usually, this mechanism is bankruptcy. Nothing else offers the same protections that the Bankruptcy Code offers. But the ends, not the means, are most important. Whatever works to reduce your debt load, we’re here to help.

The Bankruptcy Bluff

A few people don’t qualify for bankruptcy or they cannot overcome their bankruptcy-phobia. The bankruptcy bluff is often a good debt negotiation tool in these situations.

Debtors qualify for Chapter 7 if their income is below the state average for that family size. In Illinois, as of May 15, 2023, that figure is $122,300 for a family of four. Chapter 13 debtors must have secured debts (e.g. mortgage loans) less than $3 million and unsecured debts (e.g. credit cards) under $500,000. A few wealthy or highly-leveraged families don’t meet these qualifications.

Bankruptcy-phobia, like any other phobia, is an unreasonable and deep-seated fear of something, which in this case is filing bankruptcy. This fear is unreasonable because the collateral consequences of filing bankruptcy, like a lower credit score, aren’t nearly as bad as many people think they are. Nevertheless, if someone has severe claustrophobia, no amount of education can change that unreasonable fear of closed spaces.

When a Chicago bankruptcy lawyer opens debt reduction negotiations with a creditor, that creditor doesn’t know the filing bankruptcy threat is an empty threat. The creditor only knows that if the debtor files bankruptcy, the creditor probably gets little or nothing. So, the creditor is highly motivated to make a favorable agreement.

Debt Reduction Negotiations

A bankruptcy bluff makes debt reduction negotiations much more effective. These negotiations usually lead to UPB (unpaid principal balance) reduction, a lower interest rate, or similar relief that can save your family thousands of dollars.

Students who do their homework usually do well on their tests. Likewise, attorneys who examine issues and collect evidence usually obtain good results during debt negotiations.

Assume Sally, a rather shady mortgage broker, convinced Raul to buy a home he could barely afford and sign documents he barely understood. Sally didn’t say or do anything illegal. Therefore, Raul doesn’t have a mortgage fraud case. But she used some questionable tactics that the mortgage company doesn’t want to be made public.

In this situation, rather than risk public exposure, the mortgage company might agree to modify Raul’s delinquent mortgage. A mortgage modification is basically a payment deferral. The bank tacks on the late payments to the back end of the loan. So, Raul’s delinquency disappears and he must only continue making regular payments to avoid foreclosure or other adverse action.

As part of this negotiation, attorneys usually convince creditors to not report this deal to credit reporting agencies. 

Reach Out to a Diligent Cook County Lawyer

No matter what kind of financial problem you are having, a solution is usually available. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

Source:

experian.com/blogs/ask-experian/research/consumer-debt-study/