Print This Page

Say No to Debt Consolidation – Consider Chapter 13 Bankruptcy

Most people want to pay their debts. Many people think that filing bankruptcy is wrong. Some think that filing a bankruptcy case is dishonorable. And quite a few people think that bankruptcy is immoral. For these people, the hope of debt consolidation sounds like a good alternative. Read here why we think that chapter 13 is the best debt consolidation deal ever.

We agree with Dave Ramsey says:

Debt consolidation is nothing more than a “con” because you think you’ve done something about the debt problem. The debt is still there, as are the habits that caused it – you just moved it! You can’t borrow your way out of debt. You can’t get out of a hole by digging out the bottom. True debt help is not quick or easy.

Read what Dave Ramsey says about Debt Consolidation here

We agree with Illinois Attorney General Lisa Madigan who says this about Debt Settlement Firms:

These companies are unfairly luring financially strapped consumers with misleading claims that they can effectively eliminate consumers’ debt,” Madigan said. “The reality is that, after enrolling in a debt settlement program, consumers too often find themselves in even worse financial straits. It’s time to clean up this industry so that people struggling to pay off their debts aren’t being sold a false bill of goods.

Read what Illinois Attorney General Lisa Madigan says about Debt Consolidation here

Read what Wisconsin Attorney General J.B. Van Hollen is doing about Debt Settlement Firms in Chicago here

Here is what Lakelaw believes about Debt Consolidation:

  • Most debt consolidation plans or debt consolidation schemes are frauds
  • Most debt consolidation agencies and debt settlement companies will rip you off
  • Credit card companies will accept lump sum cash settlements from you if they are convinced that you can’t collect your debt. If you have some cash or can get some from a friend or relative, the experienced Kenosha bankruptcy lawyers at Lakelaw will help you with this on an hourly basis
  • If you are saving money to pay debts to credit card companies after you are in default under a “debt consolidation program”, interest will grow on your credit card debt at the default rate. In chapter 13 bankruptcy, you can pay your debts over a period up to 5 years without interest in almost every case.
  • When credit card companies get judgments against you, they will freeze your bank accounts and take 15% of your wages in Illinois and 25% of your wages in Wisconsin. In chapter 13 bankruptcy, wage garnishment stops. Bank accounts are unfrozen. You make one affordable payment each month to your chapter 13 trustee and have no further worries.
  • If you have some ready cash available, and just a few debts, our experienced Lake County bankruptcy attorneys can help you negotiate a settlement with your credit card companies. We’ve done this successfully in many cases. We do this on an hourly basis, not on a commission like debt settlement firms.

Frequently Asked Questions – Debt Consolidation

Isn’t it better to consolidate my debts than to file bankruptcy?

If you can afford to pay your debts off over time without filing bankruptcy, yes, it’s better. But if you think you can pay your debts off through a debt consolidation service, think again. You’ll be paying them a hefty fee. Creditors won’t necessarily stop calling you. You’ll actually be in default with creditors you are not paying. Your interest rates will go up a lot. Your credit limits will go down a lot. You’ll have a hard time paying your debts down.

Isn’t it true that I can pay my credit card debts off for pennies on a dollar?

You are liable for 100% of your credit card debt plus interest unless the credit card company forgives the debt or you get a bankruptcy discharge. If the credit card company forgives some of your debt, it can issue you a tax form called a Form 1099C. The debt which was cancelled is like found money to you – income – and you might have to pay income tax on it. You won’t have to do that in bankruptcy.

Can I settle my credit card debts without bankruptcy?

Credit card companies insist on knowing that they can’t do any better from you. When your back is to the wall, credit card companies may ask for a lump sum payment from you. However, the amount they will ask for is frequently more than you can pay.

Should I pay my credit card debts with money from my IRA or 401k plan?

We think this is a terrible idea. Not only are you losing money which you need for retirement, you may have to pay penalties on this for early withdrawal. Even worse, you will have to pay income tax on the money you take out. The banks could never touch your IRA or 401k – it’s exempt from creditors. Keep it that way!

What if I get my mom or dad to help me pay the debts?

That is very nice of mom or dad. And if there’s not that much involved, credit card companies might be willing to take less than 100% in order to settle. The banks won’t take less than 100% unless they know that there’s no way they will get paid more.

What happens to my credit record if I settle my debts for less than I owe?

There will be a notation on your credit report that the debts were legally satisfied for less than the full amount. This is considered somewhat derogatory and might make it harder for you to get credit in the future. However, this report is not as derogatory as bankruptcy or charge off?

What is Charge Off?

Charge off means that the credit card company has given up on collecting from you. It will probably sell your debt to another creditor who may try to collect the debt in the future. Just because the debt is charged off doesn’t mean you’re not still liable for it.

The credit card debt is now 6 years old – am I still liable?

You are still liable for a 6 year old credit card debt. It can still appear on your credit report. However, nobody can legally collect on it if you raise the defense that it is barred by the Statute of Limitations. After 7 years, the debt can no longer appear on your credit report.