Posts Tagged ‘Business Creation’

Why So Many Debt Consolidation Clients End Up Filing Bankruptcy

October 13th, 2022

In my years of experience practicing bankruptcy,Guest Posting I have seen clients file bankruptcy cases for many different reasons. But, for me, the most frustrating trend is the very high number of clients who seek bankruptcy advice after working with debt consolidation companies. Almost every week I consult with a family who has spent years paying thousands of dollars in a debt consolidation plan without ever freeing themselves from debt. After all the time and effort put into the debt consolidation plan, they end up hiring my office to file their bankruptcy case anyway.Seeing so many clients struggle in these programs made me realize that most people do not have a clear picture of how debt consolidation works. Most people believe that bankruptcy will ultimately destroy them financially, and go to great lengths to make sure that they avoid bankruptcy at all costs. Unfortunately, debt consolidation can harm your credit score just as much as bankruptcy in the long run — without getting rid of all your debt.This article is written to explain how debt consolidation works, and why many clients would be better off filing for bankruptcy instead.How Debt Consolidation WorksWhen you sign up to do debt consolidation you must immediately stop making payments on all of your unsecured debts (ie. Credit cards). The debt consolidation company will then have you make a monthly payment into a trust account. The idea behind debt consolidation is that you build a pool of money in that bank account. Once the pool gets big enough, the debt consolidation company starts to negotiate and pay off of your debts with those funds.What Debt Consolidation Companies Don’t Tell YouWhat debt consolidation companies often don’t tell you is that each month you don’t pay your credit cards, your credit score takes a hit. If it takes two years to save enough before the pool gets big enough to start negotiating your bills, then your credit score has been consistently declining over that two year period of time. Also, debt consolidation companies don’t have the power to stop your unpaid bills from filing a collection lawsuit against you. If you get sued for non-payment while you are trying to save enough to start negotiation, your credit takes an additional hit from the lawsuit and a judgment could be entered against you, dropping your score further. Once you have been sued and the collector has a judgment against you, that collector can start garnishing your wages and levying your bank accounts. Debt consolidation does not have the power to stop garnishments or levies either.Debt Consolidation Costs a Lot Over TimeMost of debt consolidation companies get paid by taking a percentage of the monthly payment that you put into the trust account. Taking 10% of the monthly deposit you put into the trust account is not uncommon as a debt consolidation fee. Practically speaking, the longer it takes you to save up a pool of money, the more debt consolidation companies get paid. Debt consolidation companies also cannot guarantee how long it will take to negotiate your debt. If, after two years of pooling money, the credit card companies won’t settle for the amount that you have pooled, then it’s back to depositing more money into the trust account to try and pool a greater balance, all while the continuing to not make payments on your unsecured debts and seeing your credit score decline.Who Debt Consolidation Works Well ForThis is not to say that debt consolidation is always a bad plan. For people who have access to a pool of money to start out (such as an inheritance or gift from family) debt consolidation makes sense because you should be able to settle your debts quickly without missing many months of credit card payments. If you don’t have to pool money over a long period of time, then you can also save a lot in consolidation fees. When you start out with a pool of money to place, the debt consolidation company can begin negotiating your debts immediately so that you have less time you missed payments on your credit. Consolidation may also be appropriate for people who have a lot of extra income each month, so saving a pool of money can be accomplished easily. The problem is that most people who go through debt consolidation do not fit under this category.

A Brief History of United States Bankruptcy Law

March 25th, 2022

United States bankruptcy law has a storied history almost as rich as the history of the United States in general. In fact, in many instances, the two histories have been inextricably intertwined.

Going back to the founding of the republic, bankruptcy was something that could result in some sort of punishment. However, temporary laws were occasionally enacted to help alleviate the burden of corporate and individual insolvency, particularly during economic downturns, most notably the Civil War. These bankruptcy protections were eventually repealed as economic conditions improved.

The first attempt at a long-lasting bankruptcy law-referred to occasionally as “The Nelson Act”-was passed in 1898. This statute created the first permanent protections to commercial debtors undergoing bankruptcy. Unfortunately, individual bankruptcy protection remained elusive for most people.

Bankruptcy protection remained in a bureaucratic netherworld until the Great Depression wreaked havoc on the United States economy through the 1930s. During that incredibly dark era bankruptcy and poverty were a way of life for about 1/3 of the population. Bankruptcy Code was substantially revisited to provide debtors with more legal protections, although some states fought back against such revisions because they were seen as “too friendly” to debtors.

As the United States embarked on military intervention into World War II, further expansive bankruptcy considerations were set aside as the nation focused its domestic agenda on winning the war abroad.

Following World War II, as the United States demobilized, the troops came home to an economic landscape that had been transformed by years of war into an economic powerhouse. This lead to unprecedented prosperity for millions of Americans who had known nothing but poverty during the Great Depression. Therefore, expansions of the Bankruptcy Code were minimal for the next three decades.

It wasn’t until the Bankruptcy Reform Act of 1978 that the United States embarked on a comprehensive effort to replace “The Nelson Act” bankruptcy code enacted in 1898.

The Bankruptcy Reform Act of 1978, not coincidentally, came about during another drawn-out economic downturn as bankruptcy again became a haunting specter in American life.

The Bankruptcy Reform Act of 1978 remains the general framework around which the modern day Bankruptcy Code is built. It includes the most familiar “chapters” of bankruptcy law of which most people are familiar, such as Chapter 7, Chapter 11 and Chapter 13.