Debt may be a way of life for most of us but it does not have to control our lives. There are options for debt relief that you should consider before you find yourself at risk of being sued and facing eviction, foreclosure or losing your car and other assets.
A time tested method is drafting a budget and sticking to it. List all of your debts, net income and monthly expenses and see if you have any disposable income. You need to prioritize your expenses so that the basics are met such as rent or mortgage, car loan and gas, food, insurance, health care and education. Ponder whether you really need that $125 monthly gym membership or dating service and if you can reduce your cell phone bill by switching carriers or plans.
You can also call your creditors, most of whom should be willing to work with you by agreeing to a modified plan for reduced payments and/or a lower interest rate. For homeowners, contact your lender who will typically work with you by temporarily extending payments and reducing them or suspending payments for a time until you secure new employment or some other contingent event is met. If not, contact the Department of Housing and Urban Development or the California housing authority for mortgage assistance programs. You may want to discuss this option with your Los Angeles bankruptcy attorney who can also provide certain options for you.
For your auto loan, you may be able to reduce your payments if you have been making timely payments on it for at least one year.
If collection agencies are after you, you may be able to work out a payment plan or pay a lump sum in settlement. Discuss this with your LA bankruptcy attorney as well as you may be able to ignore this debt completely if the agency cannot produce evidence of the debt.
Debt Counseling Services
There are free, non-profit agencies designed to help struggling consumers with counselors trained in debt management who can help you with a budget and other money management ideas. They can draft a plan for you and direct you to classes and instructional materials. You may find these at universities, credit unions and consumer protection agencies or online.
These services can also negotiate with your creditors or provide a debt management plan whereby you deposit a set fee each month to pay off your creditors. Avoid companies that charge fees as there is no guarantee they can work out a manageable plan or even include all of your creditors. Further, their fees are often higher than you think. Unfortunately, most people who enter into such plans struggle to make the monthly payments and drop out, putting them back to where they started.
For debtors facing imminent foreclosure or where a budget or debt management plan is not getting them above water, there is bankruptcy. Consumers may file either Chapter 7 or 13. A Chapter 7 is a liquidation where unsecured debts such as credit cards and medical expenses are discharged while most if not all of your assets are exempt from seizure.
A Chapter 13 is a debt reorganization where you pay back your creditors over a 3 or 5-year plan and usually at a reduced rate by paying a set monthly fee to the trustee. For homeowners facing foreclosure, a Chapter 13 can stop the process and allow you to keep your home so long as you make the current mortgage payments. Your arrearages are included in the repayment plan.
There are eligibility requirements for filing a Chapter 7 that involves your income not being over the state median income, called a means test. For California, the median for a single earner is $48,415; for a 2-earner family, it is $63,030. Even if you do not pass, there is a means testing analysis to determine if you can still file for Chapter 7. If not, you will probably qualify for a Chapter 13.
Discuss all of your debt resolution options with your Los Angeles bankruptcy lawyer who can deliberate with you on these various procedures so you can weigh their benefits and pitfalls, and decide whether filing bankruptcy is the right course of action for your particular situation.