There is no law that says you must seek any formal, legal debt relief. For example, you can contact your creditors at any time and inform them that you’re having a hard time making ends meet and ask them to work with you. You might ask them to reduce your monthly payments. Or, perhaps they would be willing to take less than the balance owed if you pay the reduced balance in a lump sum. Be aware that if you convince a creditor to accept less than the full balance you owe, you may be creating a tax problem for yourself. But, you can take this overall approach with every single creditor you owe in an effort to get your finances under control. Some of your creditors may even be willing to help you but they are not under any legal duty to do so. In other words, you may ask for help but the creditor has a legal right to say no.
The Self Help Approach
If you are in this situation, the real question is whether or not it makes any sense at all to try this self-help approach. You’re going to have to talk these creditors out of some money that you legally owe. Most creditors take the position that they loaned you the money and you should pay it back as you agreed. If your financial problems are stemming from one or two creditors, then you might try to work out something with just these creditors. If you can successfully accomplish this, then you’ve resolved your financial crisis for the present and more formal debt relief may not be necessary.
On the other hand, if your financial troubles stem from more than just a few creditors or you have “super” creditors like IRS , student loans, or past due alimony or child support, you very likely need to seriously consider formal, legal debt relief.
Credit Counseling Agencies
You might be thinking about contacting a credit counseling agency. Reputable credit counseling agencies can give you advice about managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Counselors in reputable credit counseling agencies are trained and certified in the areas of consumer credit, money and debt management, and budgeting. These agencies may be able to help you develop a “debt management plan” or DMP.
If you’re thinking about contacting a credit counseling agency, the first thing you should consider is whether or not the services of a credit counseling agency are likely to cure your troubles. In making this determination, you should ask yourself some questions. Are you disciplined enough to create a realistic budget for yourself and stick to it? If not, credit counseling probably won’t help you. Are at least some of your creditors willing or likely to work with you on repaying the debt you owe? If not, credit counseling may be ineffective. Which of your debts is causing the most problems? Credit counseling agencies can usually help only in certain situations when all you need is a little lowering of your interest rates on some unsecured debts, e.g., credit cards. If your financial problems include past due balances on your house note, car payment, or other payment on debts secured by collateral, credit counseling agencies will rarely, if ever, be able to help you. In these situations, you are facing the real possibility that you are about to lose your home in a foreclosure or your car to a repossession. And that foreclosure or repossession is likely to come sooner rather than later, so time is of the essence. And, as mentioned above, if you owe delinquent taxes, student loans, and/or past due alimony or child support, it is highly unlikely that you will resolve these types of debt through a credit counseling agency.
If you are being sued for the collection of a debt, a credit counseling agency cannot help you. In such situations, you need legal advice, not credit counseling assistance. Be aware that if you are being sued, you should seek the advice of a competent and experienced debt relief lawyer immediately. Once a lawsuit is filed against you, you have only a limited amount of time to formally respond to the lawsuit. If you do not respond within that time, a judgment by default can be entered against you. If this happens, you normally lose your right to contest the lawsuit even if you had good grounds to do so. In this situation, your only recourse is normally bankruptcy under Chapter 7 or debt consolidation under Chapter 13.
Further, if you are considering the services of a credit counseling agency, you should be very careful and search for a reputable agency. Some agencies call themselves “non-profit”; however, this does not mean their services are free of charge. Some credit counseling agencies charge high fees and may not disclose all fees to you. It is probably best to locate a credit counseling agency that offers local, in-person, services in your area. Many universities, military bases, credit unions, housing authorities, and branches of the U. S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, family, and friends may be a good source of information and referral.
Bankruptcy May Be The Best Solution
Although self-help may work in certain circumstances, always remember that there are no self-help remedies that will protect you and your money and property from foreclosures, repossessions, lawsuits, bank account and wage garnishments, seizure of non-exempt assets, and collection harassment. And, as mentioned above, credit counseling agencies cannot help you in these circumstances. Only formal, legal debt relief can protect you from these consequences. If you are faced with any of these possibilities, you need immediate legal advice from a competent and experienced debt relief attorney. Our attorneys have been helping families and individuals deal with these matters for decades. If you or your family needs help, we offer a free, no obligation consultation with one of our attorneys to discuss your situation and help you identify the best option for you. If you have tried self-help measures and/or credit counseling services and you are still facing financial troubles or you want to know if you should consider filing a Chapter 7 bankruptcy or Chapter 13 debt consolidation, see this blog post by Brad Botes. The information in that post will help you make the right decision for you or your family.