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Miami Bankruptcy Law Blog

How to recognize debt settlement scams

As a Florida resident who feels like you are drowning in debt, you may be looking for just about any type of assistance you can get. You may, too, find that you are increasingly becoming a target of debt settlement companies who may make all kinds of promises in an attempt to get you to work with them. At Kingcade Garcia McMaken, we recognize that some debt settlement companies are little more than scams, and we have helped many clients facing overwhelming debt pursue safer solutions that meet their needs.

According to the Federal Trade Commission, most debt settlement companies are for-profit agencies, meaning they may be more focused on making money than helping you get your finances back in order. So, how can you identify a potential debt settlement scam before it becomes too late?

Deliquent mortgage payments on the rise

People who are struggling with overwhelming credit card debt, or have just experienced a sudden change in their lives, such as a job loss or diagnosis of a chronic condition, may find it hard to make their mortgage payments every month. House payments can be a major chunk of a person's paycheck, and when money is tight, it may be difficult to come up with the funds to make that payment. As a result, many Americans fall into foreclosure or end up losing their homes because of their inability to pay.

The recent trend of foreclosures across the United States shows that more people are dealing with this type of situation. Mortgage Bankers Association put out a National Delinquency Survey and found that more people who pay mortgages on one to four-unit homes have delinquent mortgage payments in the third quarter of 2018. Experts attribute some of these late payments to the natural disasters that have affected many homeowners this year. The delinquency rate increased in states who were hit by tropical storms and hurricanes, as people were unable to make their mortgage payments on time or at all.

Do you qualify for Chapter 7 bankruptcy?

If you have considered filing for bankruptcy in Florida, you may be unsure of which type of bankruptcy is best for your situation. Chapter 7 bankruptcy, also referred to as liquidation bankruptcy, is most common in the United States, as people attempt to emerge out from under a pile of credit card debt, medical expenses, mortgages and other expenses. Chapter 7 bankrutpcy absolves these debts and gives you a fresh financial start. In order to file for Chapter 7, however, you must meet the requirements set by the Bankruptcy Code and the United States Courts.

You cannot file for Chapter 7 if you have recently filed for bankruptcy and had your case dismissed because you did not follow the rules of the bankruptcy process. The court will also look at your income over the past five years. If you make more than the state median, or average, you must complete a means test. This assessment looks at your income information and determines if you really need to file for Chapter 7 or if you should file for Chapter 13 bankruptcy, which sets up installment plans for you to repay a portion of your debt.  

How can you avoid filing for bankruptcy?

If you are currently living with overwhelming debt in Florida, you may worry that bankruptcy is your only debt relief option. Fortunately, it is not. While there is nothing wrong with filing for bankruptcy, according to U.S. News - Money, many people often consider it one of the top five life-changing adverse events a person can go through in his or her lifetime, along with disability, severe illness, divorce and the loss of a loved one. If you are one of these people, you may want to know what you can do to avoid bankruptcy but still get your financial life back on track.

U.S. News suggests a few different tactics you can use to get control of your finances without having to file for bankruptcy. One tactic involves selling your property. If you were to file for Chapter 7 bankruptcy, the bankruptcy trustee would liquidate your assets to settle your debts anyway. You can avoid bankruptcy by selling your assets yourself and using the proceeds to pay off creditors. By doing this, you can possibly avoid having to liquidate those assets that mean the most to you, such as your home, fine art or heirlooms.

Can I get a loan modification?

When you have financial trouble, one of your first concerns may be your mortgage. The last thing you want is for it to go into foreclosure and to lose your family home. Your lender also wants to avoid this, so it may offer you a solution called a loan modification. This option is a great way for Florida homeowners to save their homes and get back on track financially.

According to NerdWallet, a loan modification is not the same as refinancing. In a modification, your loan terms are changed. In refinancing, you get a whole new loan. Modification allows your lender to adjust the terms to help make your payment more affordable for your current financial situation. It can help you to avoid refinancing and extra charges, along with keeping foreclosure away.

How do I find a good credit counseling agency?

Since good credit counseling can save you from a possible stint in bankruptcy court, you want to find the best credit counselor for you in the state of Florida. Still, with the variety of choices available, you might feel lost. Some people may also feel panicked because of their mounting debt and decide to go with the first counselor they come across. However, Nerdwallet suggests you will be better off if you undertake some careful preparation before making a commitment to any counseling agency.

Instead of joining up with a credit counseling agency right off the bat, give the agency a call first to secure a meeting with a credit counselor. If you cannot set up an in-person meeting, try to schedule a phone conversation with a counselor instead. The purpose of this initial meeting is to gauge the counselor, to find out if the counselor is suitable for your needs.

Who benefits when you avoid credit card bankruptcy?

We know that average Florida citizens do not know much about bankruptcy -- they have no need for the knowledge. If you are like most people, even thinking seriously about filing for this type of debt relief is a once-in-a-lifetime event. Even worse, the laws change often. Even if you had a bankruptcy earlier in your life, there is no guarantee that the rules would be the same if you tried it again now.

Many of our clients at Hall, Ricketts, Schuller & Gurbacki, P.C., are stressed from debt trouble and confused by the system that is supposed to help them. That is why one of our first steps in the process is explaining exactly what bankruptcy is -- and who wants to make it harder for people to get the relief they need.

Is it true that federal student loans won't be forgiven?

You may have accrued significant student loan debt, figuring it would be no problem to repay it once you began your career. Unfortunately, like many Florida residents, you encountered unforeseen financial troubles and you are having difficulty staying afloat, let alone paying down your student debt. You might be considering filing for bankruptcy, but you've heard that student loans are not eligible for a bankruptcy discharge.

It is true that bankruptcy won't cover federal student loans, according to the U.S. Department of Education. In some instances, which you should understand are very rare, student loan debt might be forgiven. For example, a catastrophic injury or illness that has left you permanently unable to work might qualify you for student loan forgiveness. You may be required to show that you attempted to repay your loans in good faith. If you worked in a public service government position or as a teacher, you may also get help with your student loans. If you are experiencing a temporary financial hardship, you might be able to apply for a deferment of your payments.

The unfortunate rise in gray bankruptcies

As Florida bankruptcy attorneys, we here at Kingcade Garcia McMaken have noticed that more and more of our clients fall into the senior citizen category. Unfortunately, as reported by the New York Times, this new "gray bankruptcy" trend continues to increase. Whereas seniors such as you accounted for only 2.1 percent of 1991 bankruptcies, you account for 12.2 percent of today's bankruptcies

Many of today's economic factors have combined to make overwhelming debt a huge problem for seniors, such as the following:

  • Your Social Security benefits waits have lengthened.
  • Your medical costs have skyrocketed.
  • Your Medicare coverage gaps have burgeoned.
  • Your debt amounts have dramatically increased.
  • Your savings have dramatically decreased.

The benefits of pre-bankruptcy credit counseling

A common misconception that many in Miami have about those who file for personal bankruptcy is that they are simply looking for a way to not have to pay back their debts. This line of thinking assumes that federal bankruptcy laws do not require you to seek other options. In reality, you will find that numerous other alternatives will be presented to you while you pursue your bankruptcy case. One that confuses many of those that we here at Kingcade Garcia McMaken work with as to its need is the requirement to go through credit counseling. 

Per the Administrative Office of the U.S. Courts, all considering personal bankruptcy must seek credit counseling prior to filing. This may frustrate you at first, as you have likely already thoroughly assessed your financial situation and developed your own conclusions. Credit counseling agencies, however, offer both experience in helping to manage debt as well as a fresh perspective on how to settle outstanding liabilities. What they also offer that can ultimately be invaluable to you is a detailed debt repayment plan. 

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