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5 years 9 months ago

When you are overwhelmed by debt, it can feel like you don’t have many choices. Continuing to pay interest only on your bills that never seem to go down can make you financially and emotionally weary. It is possible that bankruptcy has crossed your mind, but perhaps you aren’t sure how you feel about it. One possible alternative that might make sense to you is entering into a debt settlement plan. In either case, consulting with a bankruptcy attorney can help you make the decision on what you want to do.
How Bankruptcy Looks
Debt Settlement Bankruptcy NYCFor most individuals or small businesses, bankruptcy falls into one of two categories, Chapter 7 or Chapter 13. In a Chapter 7 bankruptcy assets are liquidated to the point where the filer keeps a modest amount of possessions and the remainder of their unsecured debt is forgiven. Filers must meet income and other requirements to file Chapter 7.
Chapter 13 is a reorganization of debt and in many ways it looks a lot like debt settlement. The idea is to work with a bankruptcy trustee to figure out how much of your debt you should be able to afford and come up with a payment plan to pay off as much of your debt as you can over a 3-5 year period. The remainder of the debt is forgiven. Debt settlement does this too, but participation of creditors is optional, while it is court ordered in a bankruptcy filing.
Chapter 13 is a common choice for those who have higher incomes, have assets that they would have to forfeit if they filed a Chapter 7 bankruptcy, or are trying to prevent their home from being foreclosed on. Both Chapter 7 and Chapter 13 create an automatic stay, which prevents creditors for trying to collect on debts.
How Debt Settlement Looks
Many times people will opt for debt settlement simply because they feel better about it. While they are asking for some debt to be forgiven, they will rationalize that at least it falls short of bankruptcy. There will still be a negative effect on your credit worthiness, but perhaps not to the extent you would face by filing bankruptcy.
The Fine Print
If your main creditors seem to be open to the idea of debt settlement, it might seem like it is the right choice, but there are elements of debt settlement that many people forget to consider. Two of these involve existing taxes and future taxes.
Existing taxes
Those who owe money to the IRS might want to think twice before opting for debt settlement over filing a Chapter 13 bankruptcy. Many companies that specialize in debt settlement will advertise that they can get the IRS to settle tax debts. In reality this hardly ever happens. Generally, if the IRS sees any glimmer of hope of getting the money, they won’t approve a settlement. The rare approved cases normally involve people who are disabled or elderly to the point where they are unable to work,
Future taxes
When a person gets an offer from a creditor that they are allowed to pay just a fraction of their debt, the prospect can be inviting. However, there is a catch – taxes. When you pay off half of a debt, the IRS considers the other half of the debt “income.” and you will be asked to pay taxes on it. If you need to make these arrangements with several creditors those dollars can add up fast.
When debts are settled as part of a bankruptcy agreement, the amount discharged is not taxed. Your income stays in the exact place you expect it to be, and there are no unpleasant surprises just when you thought your financial outlook was going to be brighter.
Your Unique Situation
Obviously whether to file for Bankruptcy or seek debt settlement is a personal decision that you will need to feel comfortable with. In some cases having a few hundred or a thousand or so dollars won’t hurt you enough to cause a problem. But whatever you decide, do the math, and don’t count on long shots to work in your favor. Consult with professionals and make an informed choice that’s right for you.
photo by Orin Zebest


5 years 9 months ago

carbon-motors_1364354819439_393121_ver1.0_320_240Bringing you the most up-to-date news, tips and blogs throughout the web. Here’s your Bankruptcy Update for June 13, 2013 Carbon Motors files for bankruptcy in Indianapolis How Detroit bankruptcy could unfold vNet founder files for bankruptcy


5 years 9 months ago

Phone Call BankruptcyOne of the most common reasons why people file bankruptcy is to stop harassment from debt collectors.  Debtors who file for protection should be aware of their rights and how to protect them.  With a large number of people struggling during these hard economic times, debt collectors will do whatever it takes to collect payment. [...]


5 years 9 months ago

bahrain sharia and bankruptcy courtSome religions forbid people from charging interest on money loaned. A New York bankruptcy court shows that it doesn’t need to stand in the way of commerce.
We don’t talk about Chapter 11 bankruptcy here because I don’t usually take on those sorts of cases.  And we seldom discuss religion because it’s not often that matters of faith intersect with matters of money.
But the curious case of Arcapita caught my eye as an example of how faith and money collide in odd ways.
Bahrain’s Arcapita Bank took a rare and bold step of filing for bankruptcy in New York in March 2012, going against the common practice of Middle Eastern companies to engage in debt workouts relying solely on consensual talks.
The numbers aren’t important, but the company was faced with a difficult situation in fashioning a plan to repay creditors.
That problem was that Sharia, Islamic law, got in the way.
Interest-Free Lending?
Sharia prohibits the payment or acceptance of interest or fees in lending.  So, too, is it forbidden to invest in a business that provides goods or services considered contrary to Islamic principles.
This is similar to the Old Testament, which encourages loans to people so as to enable the poor to regain their independence, but forbids the charging of interest on the loan as being exploitative.
I’m sure there are other faiths and denominations that speak to a prohibition against charging or paying interest. If you know of one, let me know in the comments section below.
Arcapita’s Chapter 11 Problem
Unfortunately, business turns on the ability of the lender to obtain a return on investment that makes it a good idea to lend money in the first place.
Under Chapter 11 bankruptcy, you’re putting together a plan to repay your creditors over the long run.  Agreements are modified under court supervision, then the parties go off to perform accordingly.
But without the ability to pay interest to the largest secured creditor in the case, Arcapita was in a tight spot. If it didn’t agree to pay interest to the creditors, there’s no way a Chapter 11 Plan would get confirmed.
The Murabahah Solution
What if the loan would be repaid at a set price that already included a profit margin acceptable to Arcapita and the lender?
The lender is compensated for the time value of money in the form of a profit margin, the borrower can do the deal, and the Chapter 11 Plan can be confirmed.
That’s exactly what Arcapita did.  It’s called Murabahah, a “rent-to-own” type of arrangement that allows business to move forward. This is also how mortgages are often handled under Islamic law, fixing the costs at the time of contract.
No late payment penalties are allowed, which is why Islamic banks apparently ask for higher down payments to offset the risks of nonpayment.
Bankruptcy Court As Problem Solver
The Arcapita solution, which is the first Sharia-compliant Chapter 11 Plan on record in this country, shows that the bankruptcy court isn’t always a strict place to be.
Rather, I’ve found that in difficult situations it’s the bankruptcy court that helps fashion a solution that works for everyone.
In New York bankruptcy courts, loss mitigation allows the parties to come together to modify a home mortgage in ways that are at times extraordinary.
Disputes are handled, assets divided, and creditors made whole without being unfair to those who look for help.
This is an exceptionally unusual situation, but Arcapita’s Sharia-compliant Chapter 11 underscores just how well bankruptcy can work.
Image credit:  JohnConnell
Sharia And The Chapter 11 Bankruptcy Problem was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.


5 years 9 months ago

  When you decide to work with us to determine if Arizona bankruptcy is the right choice for you, we will want to review all of your property (assets) and your debts. To read more about the kinds of information we will want, read our article on “Gathering All the Facts.” We will also want [...]


5 years 9 months ago

PeggyTanous5-300x240Peggy Tanous, former star of the television series “Real Housewives of Orange County” files for Chapter 7 bankruptcy protection.  Known as a wealthy party girl to TV viewers, her financial liabilities include owing millions to a number of creditors including credit card companies, mortgage loans, and property taxes.  Even though she reportedly owes millions, Tanous [...]


5 years 6 months ago

  When you decide to work with us to determine if Arizona bankruptcy is the right choice for you, we will want to review all of your property (assets) and your debts. To read more about the kinds of information we will want, read our article on “Gathering All the Facts.” We will also want […]The post Determining Your Personal and Household Expenses in Arizona Bankruptcy appeared first on Tucson Bankruptcy Attorneys Trezza & Associates.


5 years 9 months ago

smug about settling a federal student loanYou may be able to settle your federal student loans.
You probably know that there are only two guarantees in life – death and taxes.
And you’ve also been told that when it comes to federal student loan debt, you’re on the hook for the full balance.
I can’t comment on the first (I pay my taxes but, to date, have not died) but I can tell you that settling the student loan beast isn’t a pipe dream.
Depending on your situation, it may or may not work out for you.
Federal Student Loan Settlement Guidelines
If you’re in default on your federal loans, the U.S. Department of Education explicitly allows debt collectors to settle your debt. If you’re current, that’s not going to happen.
Compromises are account settlements that involve a reduced overall payment to satisfy the federal student loan debt in full. Compromises are not to be offered as the first option in collection negotiations, and debt collectors are instructed to discuss it as an option after exhausting other negotiation opportunities.
Types Of Federal Student Loan Settlements
The U.S. Department of Education allows three types of settlement options:

  • Standard compromises, which are as follows:

    • You pay only the current principal and interest (waiver of projected collection costs/fees);
    • You pay at least the current principal and half the interest (50%); or,
    • You pay at least 90% of the current principal and interest balance.
  • Discretionary compromises, which involve a payment of less than the standard compromise amount. All discretionary compromises require prior approval by U.S. Department of Education, so the collection agency can’t agree without some back-up documentation; and
  • Nonstandard compromises, which are offered to only a very limited number of student loan borrower without approval by the U.S. Department of Education.

How A Federal Student Loan Settlement Gets Paid
If your settlement is approved, you’ll have to pay it by certified funds (cashier’s check, money order, certified personal check) or by credit card. The collection agency will not accept personal checks.
In addition, all settlement offers are valid for 90-days from the date of the date of approval.  If you’re going to be making payment after the 90-day deadline, the collection agency will need to get approval from the U.S. Department of Education.
After Settlement, The Tax Man Cometh
When you settle a debt, you will get a Form 1099 in the mail. You may need to pay taxes on the forgiven amount of the loan, so be careful to factor that into your calculations before settling.
Get A Student Loan Lawyer Involved Or DIY?
I’ve had clients come to me after they tried to settle their federal student loan debts on their own, only to fail miserably. Some people have done themselves in by their words or actions, others can still be helped.
It all depends on you, your ability to negotiate on your own behalf, and the attitude of the debt collector.
But as far as I’m concerned, the risk of an unsuccessful negotiation is far larger than the cost of getting me involved.  If you’re talking about $20,000 in federal student loan debt, settling it is going to make a huge difference in your life – why risk it?
Image credit:  TiggerT
The Truth About Settling Federal Student Loans was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.


5 years 9 months ago

Bank-of-American-New-York-City-Branch-RainingBringing you the most up-to-date news, tips and blogs throughout the web. Here’s your Bankruptcy Update for June 11, 2013 Could BofA Still Toss Countrywide into Bankruptcy? National Envelope Hopes To Lick Bankruptcy Filing Arcapita’s novel sharia bankruptcy plan approved


5 years 9 months ago

bankruptcy-questionsFiling bankruptcy can give you the relief you need when the time is right to file.  Some people are quick to say that the process may do more harm than good, but for many who have filed (including a long list of celebrities), it is the beginning of a getting your finances and your life [...]


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