There are certain debt consolidation companies with bad reputations. I won’t name them because I don’t need defamation suits. If you do decide to move forward with a debt consolidation company, make sure that there is a written agreement that spells out exactly what they will be doing for you and what they will not be doing. When can you expect debts to be settled? When will creditors be contacted? How are their fees structured, is it based upon time spent, amount saved or something else? When are their fees earned and how are they paid? What will happen if a creditor sues you before the debt consolidation company can settle the debt? These are all questions that need to be answered before moving forward with debt consolidation.
Payday loans are always a bad option. They tend to be short-term loans of $500 or less with the borrowed amount due within 15 to 30 days, depending on when the borrower gets paid. While getting $300 for an emergency without having to qualify for a loan seems ideal, the interest paid on such loans is usually $15 on $100, or $45 on $300 – which is roughly a 400% APR.
What’s more, a payday loan is often too short of a time for a borrower to repay. Some states allow for an extension, with another fee, so a $300 loan becomes a $390 loan. Then there is the risk that payday loans become a habit because the borrower can’t pay off the original balance. Of course, these companies prey on the more vulnerable by setting up shop in lower-income neighborhoods.
Additionally, for people in business, there are lenders out there that structure loans to businesses that are referred to as purchases of future receivables, which is when a company sells what they expect to earn from future sales to a third party, who pays them in today’s cash.
For discussion, let’s apply this to Austin, who worked as a talented diesel truck mechanic and potential designer.
Consider that (hypothetically) the company owner wound up selling the business, CharlesMade Trucks, to him.
At a certain point, Austin needed cash to build a prototype of a truck he designed that drove itself and was fueled by electricity. Austin contracted with a company called Merchant$$$Advance to borrow the funds needed for the prototype. As part of the loan, CharlesMade provided a UCC to Merchant$$$Advance and Austin provided a personal guarantee. what CharlesMade Trucks will earn in the future.
Rather than structure the transaction as a loan, Merchant$$$Advance structured the transaction as a sale of future receivables. This allows Merchant$$$Advance to charge CharlesMade ridiculous interest rates (in some cases more than 50%) and they are secured against any receivables that CharlesMade receives in the future.
Moreover, if CharlesMade pays back the contract earlier, there are no savings unlike a traditional loan wherein you are only charged interest for the amount of time the funds are borrowed.–
Also, because Austin has signed a personal guarantee he will be held personally responsible for the remaining balance if CharlesMade was unable to repay the contract.
Companies like Merchant$$$Advance file UCCs, which are security interests, on the businesses on their future receivables. They classify the purchase of future receivables as a security when, in reality, it’s a loan secured by receivables with illegal interest rates.
So bottom line, if you own a business, beware of purchase of offers to purchase future receivables.
Deciding to File for Bankruptcy: Do’s and Don’ts
What you should do is meet with an attorney to determine whether or not you qualify and, if you do, find out which bankruptcy is right for you.
What you should not do is repay friends or family members within a year prior to filing. This invites lawsuits against the person that you’re repaying. It’ll complicate your family and friends’ life and potentially interfere with your bankruptcy case.
Additionally, you don’t want to charge items on your credit cards that you know you will not repay within the 90 days before you file the case.
The Bankruptcy Code is meant to help honest, but unfortunate people in debt and provide them with a fresh start. The Bankruptcy Code is not meant to help someone take advantage of their creditors within the months before their filing, knowing full well that what they charge to their card will never be repaid. Such debts are non-dischargeable under section 523 of the bankruptcy.
The Steps of a Successful Bankruptcy
| Step 1 | You meet with the bankruptcy attorney and provide whatever information and documentation that the lawyer requests, including but not limited to: 1. Your last two years tax returns 2. Your last six months bank statements 3. Your driver’s license and social security card 4. Your last sixty days paystubs |
| Step 2 | Then, you have a second meeting with the attorney where the law firm prepares and reviews with you the bankruptcy petition, making sure that your filing is prepared correctly. The bankruptcy petitioning schedules are signed under the penalty of perjury, so accuracy is very important. |
| Step 3 | You take the first credit counseling course which must be taken before the petition can be filed. |
| Step 4 | The petition is filed. |
| Step 5 | The attorney forwards all the necessary documents to the trustee. |
| Step 6 | There will be a meeting of creditors either over the phone or at the courthouse. After the meeting of creditors, the trustee and the creditors have a 60-day window to bring an action to challenge the discharge or the discharge-ability of certain debts. |
| Step 7 | You take the second credit counseling course. |
| Step 8 | If no actions are brought, which is what happens in 99.6% of the cases that I file, and you have taken the second credit counseling course, then the court will issue the discharge on or about the 61st day. |
| Step 9 | The case will be closed. |
The Timeline of Your Bankruptcy Case
In a Chapter 7 bankruptcy case, the process takes about 100 days from start to finish. I always let my clients knowwhat needs to be done before we file a case.
As I referenced in the above steps, you’ll have to provide your attorney with all the documents that they need. Normally this includes tax returns, copies of identification, pay stubs, bank statements, and all financial documents needed to check your petition to ensure that everything is correct.
A chapter 13 case can take 3 to 12 months to confirm – depending on its complexity. Throughout the process, the trustee will likely ask for more documentation, and there will be confirmation hearings that are often contested. In total, a chapter 13 case takes five years from when the case is filed to the date you receive your discharge.
A Decade: The Number of Years a Bankruptcy Stays On Your Credit Report
A bankruptcy filing remains on your credit report for ten years for both chapter 7 and 13 filings.
Some of the Ways That People Get Back After Bankruptcy
Generally, there are three ways to recover after a bankruptcy.
The first way is to reaffirm the debt on a car loan for a good car—one that won’t break down on you–and that you’re confident you can continue to make payments on.
A reaffirmation agreement will take the debt that you have to the car company, and make it as though you never filed for bankruptcy with them.
As a result of that agreement, they’ll continue to report your payments to credit bureaus. Then, as you continue making your car payments, you’ll have positive reporting which will cause your credit score to increase much quicker.
The second way is to apply for one or two secured credit cards. Charge a little bit every month, and (most importantly) pay it off on time every month. These consistent payments will go on your credit report and increase your score drastically. Normally, after a year to two, your score can be back to the 700 range.
The third and final way, (which I don’t normally suggest that clients do), is to find a company that will report to credit bureaus for a fee. I question the ethics, but I’ve seen advertisements for them in several publications. You can do the same thing on your own with secured credit cards. So while this would not be my first choice – it is an option.
For more information on Bankruptcy Law in New York, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (516) 550-5467.