Is A Non-Bankruptcy Debt Solution Right For Me?

After leveling off during the Great Recession, consumer debt has once again reached historic highs. Total consumer debt has increased by almost $2 trillion in less than two years. Usually, bankruptcy is the best option for financially-distressed families. Only bankruptcy immediately stops adverse actions, like repossession and foreclosure, protects assets, and discharged debts. However, bankruptcy isn’t the best option in all cases. These distressed debtors have additional options.

Non-bankruptcy debt negotiation is usually the best alternative in these situations. A Chicago bankruptcy lawyer can often obtain better repayment terms, like a lower interest rate or a hardship deferral. Partial principal forgiveness could be available as well. A successful result usually hinges on thorough preparation. Generally, when people come to a negotiating table with a clear idea of what they want and a plan for how to obtain it, the negotiations usually work out very well for them.

Do Not Qualify for Bankruptcy

Most people, but not all people, meet the formal and informal qualifications for consumer bankruptcy in Illinois.

Formal qualifications include debt ceilings in a Chapter 13 and the means test in a Chapter 7. Typically, Chapter 13 debtors must have less than $1.3 million in secured debts. That total includes both current and delinquent obligations. So, if the debt just bought an expensive home, the debtor could be over the limit. According to the means test, debtors must earn less than the statewide average to file Chapter 7. Illinois has one of the lowest average incomes in the country.

Generally, attorneys use the threat of filing bankruptcy to obtain better terms in the aforementioned areas. In other words, if you don’t reduce the interest rate or otherwise offer better terms, my client will file bankruptcy, and you will get nothing. The creditor doesn’t know that this threat is an empty threat in these cases.

Nondischargeable Obligation

Student loans, back taxes, and many other unsecured debts are priority unsecured obligations which are only dischargeable in certain situations. For example, student loans are only dischargeable if the debtor has an “undue hardship,” a phrase that Illinois law narrowly defines.

These debts may not be dischargeable, but pretty much everything is negotiable. As mentioned, creditors don’t want debtors to file bankruptcy, because if that happens, the judge usually eliminates the legal obligation to repay the debt. A fundamental rule in the world of high finance, and in life in general, is that something is always better than nothing.

Without a lawyer, nondischargeable obligation negotiations usually fall flat. They make no headway, the bank makes a low-ball offer, or the bank makes a take-it-or-leave-it offer. Attorneys are highly trained negotiators. They know how to apply pressure in the right spots. Perhaps more importantly, lawyers know when they should stick to their guns and when they should compromise.

As a bonus, most banks agree to hold off on adverse actions, like repossession and foreclosure, during these negotiations. They want payment, but they also don’t want to look like ogres. 

Count on Diligent Cook County Lawyers

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in DuPage County and nearby jurisdictions.

Source:

newyorkfed.org/microeconomics/hhdc