How Do I Reduce by Debts and Protect My Assets?
Minneapolis Debt Relief Information
Over the past twelve odd years as an attorney, I have for the most part had the pleasure of answering questions related to clients starting or managing their business. Now there were always trouble spots that necessitated dealing with critical or precarious situations that created a few sleepless nights, but for the most part the focus was always on growth and moving forward.
Unfortunately, for the past several years the majority of my focus has been on assisting individuals and businesses from contracting or seizing operations. As a sign of the times, this is the third article which deals with reduction of debt. Just last week I answered calls from clients living in Minnesota, Washington and New York related to debt management.
The most common question asked always centers on how can I reduce my debt load and still preserve the little assets I have remaining. My usual answer is to suggest that the individual or business negotiate a reduction with the creditor based on what they can afford to pay.
Some of our clients can only afford to pay $0.15 – 0.30 on the dollar as it relates to their total debt, but nevertheless want to stay in control of their financial situation. For these individuals we handle the negotiation and settlement process based on the criteria they set up front. Over time their debts get settled and the individuals can once again turn their focus toward growth and generation of income. Any tax ramifications are addressed upfront with the assistance of a CPA and many end up qualifying for the debt forgiveness exemption under section 108 of the IRS Code. I have written previously that debt settlement is nothing new and that we have successfully negotiated debts for many years on both the debtor and creditor side of the ledger. However, the level of significant reductions unsecured creditors such as credit card companies are willing to accept have not been previously seen.
I have found over the years that bankruptcy for most members of our community is really an option of last resort. There are two basic reasons for this. First of all, in a bankruptcy setting the control over all of your assets and liabilities is ultimately in the hands of the U.S. trustee, whose fiduciary duties lie with the creditors and for whom he/she is obligated to maximize the dollar value of your non-exempt bankruptcy estate for purposes of distribution. In other words, any control over who you pay or how you pay is in the hands of the trustee and the bankruptcy court. Any non-exempt assets will be made part of the bankruptcy estate and distributed to creditors. The other common problem is that people may have accumulated debt, but they still maintain a business or are employed and earn a decent salary. Under this scenario, any money left over on a monthly basis, after payment of all necessary expenses, will go to pay creditors over a period of 36 – 60 months depending on the overall earnings of the debtor(s). The exact payment period is determined by the trustee under a means test.
So unless your situation is truly dire, we always encourage our clients to maintain control over their financial situation and attempt to negotiate their way out. The bankruptcy option remains a trump card, used only if matters do not proceed as planned.
What I have simplified for you are the three most common options for reducing debt. The first option is to negotiate with each creditor, one at a time, until all of your debts are satisfactorily resolved. This option is perhaps the most involved, but you retain control over your finances and no one questions your decisions. The second option if you have no income and your debts exceed your assets is to file for bankruptcy under Chapter 7, or what is known as liquidation. Under Chapter 7 protection you get to keep only certain exempt assets, but all your debts are discharged or forgiven. Finally, if you want to discharge all your debts at once but have income on a monthly over and above you monthly expenses, you can qualify for the Chapter 13 bankruptcy, pursuant to which you will be obligated to make monthly payment for the benefit of creditors from a three to five year period before you can obtain a discharge. Please note a bankruptcy is a public filing for which court records are maintained indefinitely and accessible by third parties.
All of these options are unique and specific to each individual’s financial situation as well as other considerations. If you have questions about any or all of the options, please feel free to call us at 612-355-2200 for a free telephone consultation and we will be happy to discuss in confidence your particular situation within the frame work of applicable law.
