Debt Consolidation Versus Bankruptcy

A debt consolidation or frequently called debt management plan is a voluntary program to help clients resolve credit problems and pay debts through one monthly payment. The client typically pays their payment into a type of escrowed savings account and the servicer of the debt management plan will typically negotiate with creditors to attempt to lower interest rates, stop late and over-limit fees, lower monthly minimum payments and pay off debts in fewer than 5 years. The disadvantages of a debt management program are that the servicer cannot always guarantee that all creditors will engage in the plan, and at times the creditors will still pursue outside legal action against the client which will still create a need for a bankruptcy filing to protect money and property. Additionally, the creditors will still be reporting negative remarks on the client’s credit report during the debt management plan, as they are not receiving their regular monthly payments in a timely fashion.

While many people engage in debt management plans in order to avoid bankruptcy, many times they will still pursue bankruptcy at a later time due to issues with credit resolution and lawsuits during that plan. Chapter 7 bankruptcy can effectively discharge the debt in a 90-day period, provide legal protection and with Hoglund Law, our clients are enrolled in a program 720creditscore.com in order to rebuild their credit within 2 years. This is a much shorter time frame and much greater benefit than a debt management plan. If Chapter 7 is not an option, often times a Chapter 13 will still greatly benefit someone considering a debt management plan, as the client would only be required to pay their disposable income (what they can afford versus what they owe) into the plan over 3 or 5 years while offering them legal protection from creditors. Additionally, Chapter 13 clients are also enrolled in the credit repair program to ensure they will have a high credit score when they are done with their Chapter 13 bankruptcy.

Therefore, it is important to consult with a bankruptcy attorney who can assess your options to ensure protection and the best avenue to rebuilding credit. Under most circumstances, a debt management program is going to be a last resort in the event that bankruptcy is not beneficial to their situation.

Please contact Hoglund Law to set up a free consultation to go over all the options that may be available to you to handle your existing debt.

Written by Ann Hagerty

I have a passion for working directly with clients and helping them navigate difficult financial decisions. I love practicing in bankruptcy because it is one of the rare opportunities in life where someone can start fresh and free themselves of financial stress.

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A Default Judgment Has Been Entered Against Me, How Can I Protect Myself?

If you missed the deadline to fight a lawsuit against you and you do not have a viable defense, a default judgment will be entered against you. Once the judgment is entered against you, the creditor will be able to initiate a garnishment action by which they can attach to money in your bank account or wages.

The creditor will issue a garnishment summons on a third party such as your employer or bank, by which the third party will be required to withhold the funds from your wages or set aside funds out of your financial account.

A creditor cannot generally garnish more than 25% of your wage earnings or any at all if you make less than $290/week. If you have a levy on your bank account, you will need to fill out a form claiming 75% of the amount taken is exempt called a “Debtors Exemption Form” and providing documentation that the income in your account came from wages. If the garnishment is through your employer, they will generally calculate the 25% and set it aside for your creditor.

Additionally, if you received any of the following sources of government assistance in the past 6 months, you are considered to be 100% exempt from garnishment:

  • Minnesota Family Investment Program
  • Work First Program
  • Medical Assistance
  • General Assistance
  • General Assistance Medical Care
  • Emergency General Assistance
  • Minnesota Supplemental Aid
  • MSA Emergency Assistance
  • Supplemental Security Income
  • Energy Assistance and
  • Emergency Assistance.

If you believe you are exempt from garnishment, you need to fill out the same “Debtors Exemption Form” indicating all your funds are protected, along with proof of the assistance received and the previous 60 days of bank statements. You cannot simply call the creditor’s attorney; you must respond to the garnishment summons in writing by claiming the exemption.

Garnishments are very serious and can cause serious financial hardship for anyone trying to deal with the involuntary repayment of your debt. Bankruptcy is another way to stop the garnishment and is often times an opportunity to recover some of the funds that were taken from you. If you wish to avoid further garnishments or levies, please set up your free consultation with one of our experienced bankruptcy attorneys.

Written by Ann Hagerty

I have a passion for working directly with clients and helping them navigate difficult financial decisions. I love practicing in bankruptcy because it is one of the rare opportunities in life where someone can start fresh and free themselves of financial stress.

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I Received a Complaint Saying My Creditors Are Suing Me, What Do I Do Now?

If you received a lawsuit document indicating the creditor is attempting to sue you, it can be a worrisome situation. When you receive the initial complaint, it indicates a law firm is representing the creditor to further pursue their claim against you.

The first step in the process is for the creditor to serve you with a “Summons and Complaint” document indicating the nature of the lawsuit. In the paperwork, it will set forth the factual allegations and legal complaints against you. They can “serve” the lawsuit on you in one of two ways:

  • by delivering it to you personally or leaving it at your home with a person of suitable age and discretion; or
  • by mail, if you agreed in writing to accept service of the Summons and Complaint by mail and signs a form that indicates your acceptance.

 

If you wish to contest the lawsuit, you need to serve the creditor’s attorney with a form called an “Answer.” If you do not provide the Answer in the time period of 20 days, the creditor may enter a default judgment against you which allows them to take further action.

There are several defenses against the lawsuit; however, not being able to afford to pay the debt is not a defense. Some of the available defenses are: improper service, statute of limitations, FDCPA violations, lack of standing, proof of payment, fraud, mistaken identity and lastly bankruptcy.

Filing bankruptcy is a protection against a lawsuit served upon you and can be used as a defense to stop any further action. When you receive any lawsuit document, it is important to consult with an attorney who can give you advice about your specific situation. One of our experienced bankruptcy attorneys can sit down with you and review the lawsuit to give you the best advice towards your next steps.

 

By Ann Hagerty

Written by Ann Hagerty

I have a passion for working directly with clients and helping them navigate difficult financial decisions. I love practicing in bankruptcy because it is one of the rare opportunities in life where someone can start fresh and free themselves of financial stress.

View all author posts →