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Here Is What To Do If You Have Debt In Arrears

October 25, 2021 by Jacob Sensiba Leave a Comment

This article is a response to a reader’s question about paying off debt on an irregular income. They write:

Can you advise me how to manage to settle my absa loan & credit card because they are in arrears

At my work I earn with commission , sometimes I didn’t earn.

Here is my answer:

Being in debt is a challenge. It takes away money you could use for more productive things. It’s even more difficult when you’ve missed payments and your debt is now in collections. If that’s you, here are some tips to help you settle your debt that’s in arrears.

Pay down debt

Utilize some debt repayment strategies.

Debt snowball – pay your smallest balance first while making minimum payments to your other debts. When you pay off your smallest balance, move on to the next smallest balance. As you get rid of debts, you’ll be able to make larger payments to the following debt.

Debt avalanche – pay your highest interest rate first. Similar strategy as the “snowball”. Once your highest interest rate debt is eliminated, pay as much as you can towards the debt with the next highest interest rate.

Use retirement funds to pay off your debt. You’ll likely, depending on your age, pay a 10% tax penalty, however (if you’re under 59 1/2). Do you have any cash accumulated in a whole life insurance policy? Use that cash value to pay off your debts

Negotiate

How much, in terms of dollars, can you pay to your creditors as a settlement? Figure out what that number is before you start contacting creditors.

It may take a couple of phone calls, so don’t get discouraged. If you don’t like what you’re hearing from the representative you’re talking to, try and get a hold of a different one. Remember the dollar amount you can pay and don’t go over that amount. If you can pay 50% of what you owe, start with an offer to pay 30%. The creditor will counteroffer and hopefully, the agreed amount is 50% or lower.

Make sure you’re clearly communicating the financial hardship you’re experiencing that put you behind on your debts. Getting sympathy from a representative could help you! Get any settlement or repayment plan in writing as soon as possible.

Make sure you’re speaking to your creditors, not collections agencies. Collections agencies will take a settlement amount and sell whatever is left to another agency. Before you’ll know it, they’ll be after you again. Speak to the creditor you initially owed. Also, be prepared to pay taxes on the forgiven amount.

Bankruptcy

Nobody likes to think about it and it would be a very difficult decision, but it might be one to strongly consider if you want to settle your debt.

If you don’t have luck with negotiations, you might have to consider bankruptcy. There are generally two options – Chapter 7 and Chapter 13. Chapter 7 clears all of your debts. Chapter 13 is more of a reorganization.

Check credit reports

Clarify with the credit reporting agencies how things were settled. Clean up the report and it could help your score a little. Late payments and charge-offs stay on your credit report for 7 years. Debts in collections stay on your credit report for 180 days.

Debt settlement is about commitment. There are penalties if you miss ONE payment of your agreed-upon settlement, so don’t miss!

One more thing. Know your rights. There are several things collectors can’t do:

They can’t threaten you
They can’t shame you
They can’t force you to repay your debt
They can’t falsify their identity to trick you
They can’t harass you

It’s a tough road, but getting out of debt is paramount for your psyche and your financial success. Utilize strategies to pay down debt. Speak with your creditors about negotiating. If negotiation doesn’t work, consider bankruptcy. Once you settle your debt, review your credit report and dispute errors.

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

www.crgfinancialservices.com/

Don’t File Bankruptcy Due to Medical Debt-Do This Instead!

February 22, 2021 by Tamila McDonald Leave a Comment

bankruptcy medical debt

Medical debt can create a serious financial hardship. Many health-related bills are surprisingly high, and you may not be presented with a lot of options for handling it in a manner that feels manageable. However, that doesn’t mean that you have to turn to bankruptcy to address these debts. There are other approaches that can work. If you aren’t sure where to begin, here’s a look at what you can do instead of filing for bankruptcy due to medical debt.

Review Your Medical Bills for Accuracy

First, before you do anything, you should review all of your medical bills to make sure the charges are accurate. If the healthcare facility didn’t send an itemized bill automatically, request one. Then, review every single line item and charge to make sure you are only billed for services you actually received.

If you find an inaccuracy, reach out to the facility and dispute it. That way, you can ensure that any medical debt you have is genuine.

Ask About Cost-Reduction Programs

If you are part of a low-income household, you may be eligible for financial assistance programs through the healthcare facility that are designed to eliminate your medical debt burden. Some will reduce the amount you owe by a specific percentage based on your income level and the amount owed.

With those programs, you usually need to complete some paperwork to prove eligibility. Additionally, if you don’t have health insurance, you may be required to apply for Medicaid to qualify. However, once that is done, all or a portion of your debt is essentially eliminated.

Negotiate for a Lower Rate

In some cases, you can actually negotiate your medical debt down. This is especially true if you are able to make a substantial lump sum payment but can’t cover the full amount. Some facilities may accept what you can offer in exchange for closing out the bill. They’ll consider it paid-in-full, even though you paid less.

At times, you may be able to use other approaches as well. For example, if you can prove that other nearby healthcare facilities charge less for an item or service, you may be able to leverage that into a discount if the difference was significant.

If you aren’t comfortable negotiating yourself, you can opt to hire a medical bill advocate. These professionals can assist with the process, ensuring you get the best deal possible.

Work Out a Payment Plan

Most large healthcare facilities have payment plan options. Some are income-driven, while others are purely time-based. With the former, how much you pay each month is derived from your income, ensuring that you don’t have to pay more than a specific percentage of your income each month. With the latter, the amount you owe determines how long you can repay. Then, the debt is divided by that set number of monthly payments.

Usually, you can find out about these programs by contacting the provider directly. In some cases, simply requesting to be placed on a plan is enough. In others, you may need to complete paperwork and provide supporting documentation, though the process tends to be straightforward.

Now, even if there is a set payment plan formula, that doesn’t mean you can request something outside of the norm. This is especially true if what you owe is close to crossing the threshold for a better deal.

For example, if the facility offers an 18-month payment plan for debts of $5,000 or more and a 12-month plan for debts under that amount, if you owe $4,925, they might honor your request for the 18-month plan. However, not all facilities will, though that doesn’t mean you should ask.

Do you have any other tips that can help someone avoid bankruptcy and deal with medical debt? Share your thoughts in the comments below.

Tamila McDonald

Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.

Should You File for Bankruptcy? These Are The Telltale Signs That You Should

January 25, 2021 by Tamila McDonald Leave a Comment

should you file for bankruptcy

In many ways, filing for bankruptcy can give you a fresh financial start, at least to a degree. However, it’s almost universally viewed as a last resort as the long-term impact of filing is significant. Additionally, filing for bankruptcy is a complex process, so much so that the mere idea can be overwhelming. But while there are consequences for moving forward, that doesn’t mean it isn’t the right move for many people. If you’re trying to decide if you should file for bankruptcy. Here are some telltale signs that maybe you should.

Telltale Signs That You Should File for Bankruptcy

You’re Using Debt to Pay Bills

If the only way to pay your bills – including general living expenses – is to use debt, filing for bankruptcy may be a wise move. When you have to use credit cards, payday loans, or personal loans to handle your daily life. You’re only getting deeper into debt with each passing month. This creates a cycle that can be difficult, if not impossible, to break on your own.

With bankruptcy, many unsecured debts can potentially be erased. This allows you to bring that vicious cycle to a halt. Essentially eliminating debts that you feasibly could never repay.

You Can’t Afford Your Minimum Payments

Once your minimum debt payments become unmanageable. You’re usually in an incredibly tough financial position. Missed payments commonly trigger fees, penalty interest rates, and other debt-increasing activities. This often makes a hard situation worse.

At times, missing a single payment on one debt may not mean bankruptcy is the best move. Sometimes, a shortfall is due to a situation that you know will pass. But, you may be able to catch back up.

However, if missing multiple payments is either already happening or likely to happen for the foreseeable future. Bankruptcy could be worth considering. Payments that are so unmanageable that you know you can’t handle them is a sign that you may be over your head financially, and bankruptcy could help you get back on your feet.

You’re Being Sued for Unpaid Debts

When traditional debt collection efforts fail, some creditors will take the next step and sue you for what’s owed. When this happens, you’re already in a tough situation. Often, heading to court to deal with the lawsuit means taking on additional expenses – such as hiring a lawyer or other court costs – making it financially unviable for many who are already struggling.

If you’re being sued for unpaid debts, filing for bankruptcy can pause those efforts. All collection activity legally has to stop while your case is being considered, giving you a reprieve. Plus, the outcome of your bankruptcy filing could erase many unsecured debts. If the lawsuit involves an unsecured debt, such as a credit card or personal loan, it could come to an end based on the bankruptcy decision.

You Can’t Escape Debt Collectors

Debt collection efforts can be intimidating and overwhelming. If you’re being hounded by debt collectors, receiving demanding phone calls and repeated aggressive letters, and you know you can’t pay off the debt, you might want to put bankruptcy on the table.

During bankruptcy, the accounts that are in collections may be eliminated. That will bring a permanent end to the calls, as well as let you have a fresher financial start.

You’re About to Lose Your Home or Car

Traditional home and auto loans are secured debts. The house or vehicle serves as a form of collateral, and the rules of the loan allow for the seizure of collateral under specific circumstances. If you fail to meet your repayment obligations, the lender has the ability to take action and potentially assert their claim on your home or car.

When you file for bankruptcy, any repossession efforts have to be temporarily halted. This can give you time to assess the situation without risking losing your house or vehicle.

Depending on the type of bankruptcy you file, these debts aren’t necessarily erased. However, you may be able to keep your home or vehicle if part of the decision includes revised repayment plans, allowing you to catch up on what you owe.

Now, it is important to note that even if a house or car is paid off, that doesn’t mean it can’t be at risk during a bankruptcy filing. The value of the property is compared to local exemption rates. If the value is high enough, your property may have to go toward settling debts. But if it is below the exemption, they are protected.

How to File for Bankruptcy

Once you’ve decided to file for bankruptcy, you want to move quickly. The bankruptcy process can be quite lengthy, for one. For another, the longer you wait, the longer you have to deal with a financial situation that’s harming you.

In most cases, getting a bankruptcy lawyer is a must. Since many attorneys require at least an initial payment upfront, you’ll either need to gather up enough cash to cover the fees or search for a pro bono lawyer. In some cases, legal aid centers can help low-income individuals or households access free or low-cost representation. However, many of these resources are overburdened, so there’s no guarantee you’ll get a pro bono bankruptcy lawyer.

Once you secure an attorney, you may need to go through credit counseling. There will also be other steps, like filing the paperwork and attending a meeting or two. However, if you have a lawyer, they will be able to walk you through the steps.

Type of Bankruptcy to File

Additionally, you’ll need to determine the type of bankruptcy you’ll be filing. Usually, Chapter 7 or Chapter 13 filings are the most common. Again, your attorney can help you assess each option, ensuring you move forward with the right approach based on your unique situation.

Ultimately, bankruptcy is a big financial step, one that will impact your financial life for years to come. However, while the hit to your credit score hurts, being able to refresh your financial situation could make it a worthwhile move if you’re already in deep.

Have you ever contemplated bankruptcy? Did you ultimately go through with it? If so, what was the tipping point for you? If not, what led you to change course? Share your thoughts in the comments below.

Tamila McDonald

How Long Does Bankruptcy Stay on Credit Report?

July 8, 2020 by Jacob Sensiba Leave a Comment

Filing for bankruptcy is a tough decision to make. It can provide relief when you’re drowning in debt, but it does have consequences when it comes to your credit. How long does bankruptcy stay on your credit report?

We’re going to explore the answer to that question, as well as a few other items, in this article.

What is bankruptcy?

It’s a legal proceeding when an individual or an entity is relieved from some or all of their debts. Whether it’s all or some, and how that process takes place depends on the type of bankruptcy that’s filed.

Chapter 7 – Liquidable assets are sold in order to pay off debts. When those assets are exhausted, the remaining debt is discharged.
Chapter 11 – The most expensive option, which is usually used by companies (General Motors and J.C. Penny, for example). This is a reorganization plan that enables companies to remain open while getting their financial obligations situated.
Chapter 13 – Only available to individuals. The person filing implements a payment plan and is typically able to keep their assets (house, car, etc.). The debt must be paid off in 3 to 5 years.

Federal student loans are often excluded from being discharged, so you’ll be on the hook for that.

Let’s take a look at how bankruptcy affects your credit report.

How it affects credit

I’ll state the obvious by telling you that bankruptcy negatively affects your credit. Typically, you can expect your score to drop by 20-25%. This also depends on your current credit score and credit strength.

Discharges on more accounts and/or accounts with higher balances will affect your score more than discharges on a small number of accounts and/or low balances.

Delinquency usually proceeds bankruptcy and those stay on your report for 7 years. Chapter 7 bankruptcy stays on your credit report for 10 years, while chapter 13 stays on for 7 years.

What to do after

Inspect your credit report with a fine-toothed comb. Make sure that the debts discharged were actually discharged. If you find errors, go through the proper channels to get those corrected.

Once you’ve filed, you can immediately start building your credit back up. The first step is to ALWAYS pay your bills on time. I’ve stated before that on-time payment history is the number one factor when calculating your credit score.

The next step is to open a credit account. This should be something small and manageable. I often suggest a secured credit card. With this type of account, you make a deposit and that deposit acts as your credit limit.

Establish a positive payment history and keep your utilization well below 30%.

Bankruptcy on your report

You don’t have to do anything to remove the bankruptcy from your credit report. It will fall off on its own.

Review your credit report once the 7 or 10 year period ends. At that point, depending which type you filed, the bankruptcy should come off.

Give it a few months as your credit report often lags a little after the activity actually took place.

Stay diligent. Bankruptcy is not a death sentence, it’s a fresh start. Pay on time, keep your utilization low, and keep your spending in check.