Despite this, there are still consumers with sufficient financial hardships - sudden medical emergencies, long-term unemployment, and familial trauma - who best suit the bankruptcy model (or, frankly, who would not qualify for other alternatives). This section attempts to specify the circumstances under which debtors would be precluded from pursuing other forms of relief. This is not a condemnation of those who cannot choose debt settlement, as there are a variety of reasons for insolvency; rather, it is a clarification of the current realities regarding debt relief.
First, each borrower should examine his or her income carefully. As a general rule, for debt settlement or similar alternatives, borrowers should be able to allocate a minimum of two percent of their total debt balance toward monthly repayment, or $400 per month of income for every $20,000 owed. Again, this is merely a ballpark figure; every borrower's circumstances are unique, but almost every debt settlement program requires a minimum one-half percent commitment (and consumer credit counseling requirements tend to be substantially higher). If there is any doubt about the ability to routinely pay this amount, bankruptcy is likely the only viable option.
Similarly, fluctuating income can render even the most honorable individual impotent in the face of creditors. The success of settlement programs is contingent on the enforcement of repayment requirements. Even a single error can destroy the entire system, leaving the borrower liable for penalties or the settlement agreement null and void. Despite the debtors' best intentions, settlement programs may cause more damage than good for those who are self-employed or reliant on seasonal boosts but do not have savings to balance the occasional bad month.
In a different manner, a great deal is contingent upon the creditor relationships of the past. If the borrower has taken out large cash advances or purchased luxury items without any indication that they intend to repay, the creditor may suspect fraudulent activity. Debtors who engage in large transactions just before their designated professionals begin debt settlement negotiations exacerbate the difficulty of the process. This type of financial activity will still make filing for bankruptcy considerably more difficult, but regardless of the surrounding circumstances, it should render debt settlement attempts impossible.
Certainly, recently acquired debts that the borrower has never attempted to repay and a fluctuating income (or, simply, a diminished income) are immediately understandable reasons why debtors would not qualify for settlement programs, regardless of the specific situation, but it is more difficult to explain the next point: secured loans. Since the debt settlement specialist must maintain leverage in his dealings, debt secured by readily repossessed or foreclosed property does not provide the appropriate negotiating position. Due to the fact that state-specific exemptions frequently shield vehicles and residences from governmental restitution during bankruptcy, it is advisable for borrowers with significant equity in either to investigate their state's laws prior to pursuing the settlement option.
This final point is not a matter of legal practicality, but rather one of ethics. Ultimately, the objective of debt settlement should be to shield the creditor from the credit-destroying effects of bankruptcy. Either Chapter 7 or Chapter 13 protection effectively prevents the debtor from committing comparable errors for up to ten years. However, if the settlement professional recognizes a pattern of behavior, they will often attempt to dissuade the borrower from what appears to be a temporary pause in a series of poor decisions. In spite of its horrifying consequences, bankruptcy does remove the filer from the credit pool, and for some debtors, this may be the most prudent course of action.
As stated, every debtor's situation is entirely unique. Before making a major move, it is recommended to consult with professionals of all stripes, as well as family and friends. For careful debtors, bankruptcy is not typically the best option. The effects on credit reports and FICO scores can disrupt lives for years, and from the loss of possessions to court-ordered budgeting, the 'cure' may seem worse than the disease. Nonetheless, given the limitations placed on debt settlement negotiators and other credit professionals, some debtors may have no other choice.""
" - https://www.affordablecebu.com/
