November 25, 2017

Reaffirmation of Debt Need Not be Under Same Terms as Original Loan

negotiation with credtorsMost people know that Chapter 7 allows you to wipe out unsecured debt – credit card bills, medical debt and other signature loans.  But what about secured debt – loans you are still paying to finance your home, your car, perhaps some jewelry or furniture?

This past March, I discussed redemption of property in Chapter 7.   Redemption of property is a viable option but it is far less common than “reaffirmation” of debt.

Why Do You Need to Reaffirm?

Secured loans actually contain two different kinds of obligations.   On one hand, you obligate yourself personally to pay a particular debt.  This is typically in the form of a promissory note.  The second layer of obligation ties the specific item of property to the loan.  This is called a security agreement.

When you file a Chapter 7 and a discharge is issued by the judge, your personal liability on your secured debt is extinguished.  This is why payments on a non-reaffirmed car loan or home loan will not be reflected on your credit reports.  You have no personal obligation to pay.  However, a Chapter 7 discharge does not extinguish the lender’s security interest against property.  This is why a vehicle lender can repossess or a mortgage company may foreclose to recover property.   In such a situation you would not have any personal liability for any deficiency amount.

A reaffirmation serves two main purposes: [Read more…]

The “Do It Yourself Bailout” – Part Three of Jonathan’s Interview with Kenny Golde

Have you ever wondered what it takes to settle your debts for pennies on the dollar?  Recently I interviewed someone who started with $250,000 of credit card debt and with tenacity and focus, has managed to eliminate more than half of this debt through negotiation.  Here is part three of my conversation – it lasts about 8 minutes.  Kenny points out that there is nothing morally wrong with settling debt.  He explains that the term “charged off debt” means nothing – it usually just means that the creditor has sold its debt to a debt buyer.  He points out that many collection agencies buy debt for 5 to 10 cents on the dollar, which is why they would be willing to settle for 50 cents on the dollar or less.  Finally Kenny notes that any debt settlement should be in writing and that you should never send any money without a written agreement. Part 4 will be posted tomorrow.

Link to Kenny Golde’s book “The Do It Yourself Bailout.”

The “Do It Yourself Bailout” – Part One of Jonathan’s Interview with Kenny Golde

Have you ever wondered what it takes to settle your debts for pennies on the dollar?  Recently I interviewed someone who started with $250,000 of credit card debt and with tenacity and focus, has managed to eliminate more than half of this debt through negotiation.  Here is part one of my conversation with author and filmmaker Kenny Golde, who discusses with me his remarkable story about how he ended up with hundreds of thousands of dollars of debt and how he came to realize that debt negotiation is a business strategy and that the guilt and emotional efforts of debt collectors are merely tactics.  This first segment lasts about 8 minutes.  Parts 2 will appear tomorrow on this blog, with subsequent installments appearing every day through the February 4th post.

Link to Kenny Golde’s book “The Do It Yourself Bailout.”

Link to Kenny Golde’s web site.

Debt Negotiation vs. Filing for Bankruptcy

Over the past few months, my of counsel officemate Susan Blum and I have met with dozens of potential bankruptcy clients for whom bankruptcy may not be the best solution.  While it may seem strange that a bankruptcy lawyer would tell you not to file bankruptcy, I advise everyone with whom I meet that bankruptcy is and should always be considered a last resort and that non-bankruptcy alternatives should be part of the discussion.

A negotiated debt settlement constitutes one viable alternative to bankruptcy.  In a debt settlement negotiation, you or an agent working on your behalf contacts your creditors to work out a payment plan for your debts.  A true debt settlement involves a reduction of both your total debt as well as the interest payments.

I occasionally get involved in a debt settlement although you really do not need an attorney.  I do recommend that you engage the services of a third party to negotiate your debt – given the antagonistic and  personal nature of this type of negotiation it is very difficult to speak to a risk manager at a credit card company about your own debt. [Read more…]

Inside the Belly of the Beast – How Debt Collectors Think

Back in February, 2007, I wrote a blog post entitled Understand the Psychology of Debt Collection Tactics and Avoid Being Manipulated.  In this article I noted that bill collectors use techniques identified by psychologists to trigger guilt and other emotional responses that might cause you to send money to a particular bill collector.

For example, bill collectors will try to persuade you to verbally authorize a draft from your checking account because such an action is immediate.  Presumably the collection statistics for individuals who promise to mail a check are significantly less impressive than those who authorize a direct payment.  Never authorize anyone to access your account electronically, by the way – it is a bad idea for many reasons.

In any case, my Bankruptcy Law Network college Andy Miofsky recently posted an interesting article in the Debt Law Network blog entitled “How to Read Your Debt Collector’s Mind.”  In this article, Andy identifies a number of freely avalable web sites published by and for the debt collection industry that reveal many of these psychological tricks.

If you are dealing with debt collectors you need to treat negotiations as a business transaction and the resources Andy identifies can help you in this regard.

Alternatives to Bankruptcy if Your Debt is Less than $20,000

On a fairly regular basis, I get calls from potential bankruptcy clients who don’t really have enough debt to justify the time and expense of bankruptcy.  For example, if your only debt is a delinquent $7,500 credit card bill, it hardly makes sense to spend $1,500 to $2,000 for a Chapter 7 case.  Similarly, it makes no sense to spend $3,500 to $4,000 for a Chapter 13, especially if you would end up paying back 100% of the debt anyway.

What, then, are your alternatives?

Debt negotiation is one alternative.  Someone once told me that "everything is negotiable" and that is especially true when it comes to credit card lenders.  My experience, however, has been that you will find it difficult to convince a credit card lender to negotiate if you are current with your account.   When you get to three or four months delinquent, you may find that the credit card lender will talk to you seriously about a reduced lump sum payoff or some type of payment plan.  The problem with this, of course, is that your credit score will take a major hit and you will have to deal with those harassing phone calls.

Another problem – who is going to do the negotiation?  You can certainly try to negotiate your own account, but this can be difficult as you are the subject of the negotiation and you are emotionally involved therein.  There are vendors out there who say that they will do debt negotiation, but I think you need to be careful there too.  I have met with several clients over the years who have tried this route, all with very mixed results.  Several of these companies have been sued by the attorneys general in several states. 

Consumer Credit Counseling is not really a negotiation service – they are funded by the credit card companies and my sense is that their goal is primarily to take some of the heat off while you enter into a payment plan that pretty much pays back everyone 100%.

Recently I have noted that several law firms (none in Georgia, to my knowledge) have added debt negotiation to their menu of services.  For example, the Michigan law firm of Thav, Gross, Steinway and Bennett has a separate law firm called StopCreditorCalls.com and has posted several compelling videos on YouTube discussing their negotiation services. 

An Alabama consumer law firm, The Watts Law Group and M. Stan Herring, publishes a very informative blog about consumer protection.  Recently, Attorneys Watts and Herring have written a series of blog posts about the Fair Debt Collection Practices Act and have identified common types of violations.  In the case of FDCPA violations, it may be that a negotiation over a relatively small credit card debt may turn into an FDCPA claim – it would not surprise me if a settlement of an FDCPA claim involved a reduction in the outstanding balance or favorable terms for the debtor.

So, if you have a relatively small amount of debt (less than $20,000 of unsecured debt) I think it is wise to strongly consider non-bankruptcy alternatives as a more cost effective solution.

However, I am still looking for specific solutions.  If you were able to work out a resolution of your credit card debt outside of bankruptcy, or if you are a lawyer who can speak about non-bankruptcy alternatives, I’d love to hear from you.

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