In general, your debt solution options depend upon whether you own a house (or condo).

Housing

1. ASKING THE COURTS – these three solutions utilize the courts to order your banks to help. As with all legal proceedings, you are “asking” the court to help:
   
   

   1. Foreclosure Litigation – this is a typical lawsuit where you sue the bank or defend against a lawsuit brought by the bank (such as a foreclosure or deficiency lawsuit).
      
      Due to the amount of loans created in the last 10 years, many of the major banks have made mistakes in the creation or administration of your loan. This may provide you with rights to sue or defend yourself against the bank. As with all legal proceedings, there is no guarantee on the outcome.

   2. Chapter 13 Bankruptcy (reorganization) – here, the court will combine the arrears on your secured debts (missed payments house & car) with a percentage of your unsecured debts (ex: credit cards), add administrative fees (trustee & lawyer), then divide by 36 or 60 – this becomes your “Plan Payment” and you will have make this payment for 36 or 60 months. You must have income to pay for this Plan Payment, your living expenses, and the regular monthly payments on your secured debts.
      
      YES... this type of bankruptcy “stops” foreclosure because you are paying back what you owe (missed payments) through the Plan Payment.
      
      YES… this type of bankruptcy qualifies you to ask the court for a “lien strip”.  A lien strip is where you eliminate the junior liens (ex: the 2nd mortgage, HELOC) on your house forever!

   3. Chapter 7 Bankruptcy (liquidation) – some people are current on their mortgages and car payments but are drowning in unsecured debts such as credit cards, lawsuits, medical bills and some taxes. See the “Debt” section below for more information. In some cases, a Chapter 7 bankruptcy will completely eliminate this unsecured debt while leaving your secured debts intact (aka you may get to keep your assets).

2. ASKING THE BANK – with these three options, you are “asking” the bank to help. Like the courts, they are not obligated to help.
   
   

   1. Short Sales – generally, your house is sold for less than what you owe. The bank typically issues you a 1099 for the difference (which is known as the “deficiency”). You must pay taxes on this 1099 because it is counted as “income”.

   2. Surrender (Deed in Lieu of Foreclosure) – here, you ask the bank to take back the house instead of foreclosing. Some banks may come after you for the difference between what your house is worth and what you owe (aka the “deficiency”).

   3. Loan Modification – this is where you ask the bank to modify the terms of your loan to lower your monthly payment. Banks may lengthen the term of your loan, change your interest rate, and/or reduce the principal amount you owe.

Debts - (credit cards, medical bills, taxes, lawsuits, etc.)

1. ASKING THE COURTS – these two solutions utilize the courts for help.  As with all legal proceedings, we are “asking” the court to help:
   
   

   1. Chapter 7 Bankruptcy (liquidation) – the court attempts to liquidate any “non-exempt” property to pay off as much of your creditors as possible. If you don’t have any assets, then you don’t have any non-exempt property and your creditors get nothing. If you have assets, then they may or may not be exempt.

   2. Chapter 13 Bankruptcy (reorganization) – here, the court will combine your unsecured debts with administrative fees (trustee & lawyer), then divide by 36 or 60 – this becomes your “Plan Payment” and you will have make this payment for 36 or 60 months.  You must have income to pay for this Plan Payment, your living expenses, and the regular monthly payments on your secured debts (house/car).

2. ASKING THE BANK – with these three options, you are “asking” the bank to help.  Like the courts, they are not obligated to help.
   
   

   1. Offer In Compromise – simply put, you make a deal with the bank to pay off the debt for less than what you owe. The bank usually requires that you pay the money within 24-48 hours.

   2. Debt Settlement – for a 15% fee, a debt-settlement company will collect monthly payments over 24-36 months to reach a percentage of your debt (ex: 75% of what you owe), and then attempt to pay off your debt for less than you owe.  There is nothing that a debt-settlement company can do if the bank says  decides to sue you (ex: you miss a payment or bank changes its mind) because they are not lawyers, yet they keep their fees.

   3. Debt Consolidation – here, a company lends you money to pay off your debts.  This new loan provides a lower monthly payment because it typically involves a lower interest rate.  However, you pay more in the long run because you pay this company over a longer period of time.  Further, some companies make you secure this new loan with an asset (ex: like your house) so they may foreclose on you if you miss a payment.

What do we think?  We prefer “Asking the Court” solutions because they utilize the law to help you – and that means lawyers who are sworn and regulated to help and protect you.   However, we do see situations where Short Sales and Offer & Compromise are applicable.  In our experience, solutions such as loan modification, debt settlement and debt consolidation rarely work and are not cost-effective.

Often, more than one of these solutions may be helpful.  The order in which they are conducted is critical to the success and/or maximizing your scenario.

But it’s not about us, it’s about you.   Remember, at GONZALES & JACKSON, LLP….We Do What’s Best for YOU.™ 

Take a few minutes and fill out the form on the “Best for Me” page, it’s easy. Once we receive it, we will perform a comprehensive analysis of your situation and provide a written consultation opinion of what we believe is best for you – FREE.