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.

Elimination of Debt in Minneapolis, Minnesota

We recently ran an article regarding eliminating your debts and similar obligations without filing for bankruptcy.  Many readers called us with a variety of questions, some of which I want address in this follow up post. We are your Minnesota Debt Elimination Attorneys.

First of all, one of the most utilized services these days by our clients is attorney assistance with negotiation and elimination of credit card obligations.  The main question we get from clients is, “We don’t want to file for bankruptcy, but our debts far exceed our assets, the value or equity in our home is gone and we have thousands of dollars charged on our credit cards, what can you do to help us?”

My answer is that, over the past ten years we have been able to negotiate client’s debts with credit card companies down by approximately 80% of the total outstanding balance existing at the time you retain our firm.  For example, if you have a $10,000.00 credit card debt owing to Chase Bank, we have been fully and finally settling this type of obligation for approximately $2,000.00.  That is a saving of roughly $8,000.00 to you.

Eliminating Debt in Minnesota | Minnesota Debt Elimination Attorneys
The next question we get asked is “How does your negotiation actually work?” The concepts are employ is no different from our handling of complex business matter.  We take a hard negotiation position that has factual and legal basis and try to achieve the best result for you.  If we take the $10,000.00 Chase Bank example, once our client has stopped paying on the card due to his/her financial inability to continue to make payments (which are in many cases interest only, so the debt never gets reduced), Parker & Wenner, P.A., sends out a settlement offer (after meeting with our client and setting up a plan of action) to Chase offering 20% ($2,000.00) of the outstanding debt as a full and final settlement of that account.  In the letter we set forth the reasons that our client is unable to pay more, such as unemployment, health issues or overexposure to the real estate or other markets.

After receiving our settlement offer the credit card company or a collection agency engaged on its behalf, contacts our office regarding settlement of the account.  Typically, the settlement proposals from the credit card company start at a discount of 50-60%.  However, we have been successful in getting the discount up to 80-85% of the outstanding balance.  Once an agreement has been reached on the settlement amount ($2,000.00 in our example) the credit card company or its representative sends our firm a letter acknowledging same and requesting payment.  We confirm the settlement amount with our client and then send a final settlement letter to the credit card company accepting the settlement and providing payment instructions via automatic withdrawal from the client’s bank account.
We receive a confirmation letter when the payment is received indicating the matter is closed.

Finally, another important issue that gets raised is the potential tax liability for the settled or reduced debt amount.  The credit card company often sends a form 1099 to the IRS indicating the amount of the discharged debt.  The IRS will treat this amount as income unless the client can demonstrate that he or she was “insolvent” at time of settlement and is therefore exempt from tax under Section 108 of the IRS Code.  The IRS, pursuant to Section 108 does not tax the discharged indebtedness of individuals it considers to be insolvent; in other words when the individuals’ liabilities exceeded the fair market value of their assets immediately prior to the settlement date.  There are also other exclusions from income that may apply to an individual case, such as the Mortgage Forgiveness Debt Relief Act.  Consequently, with the help of a good CPA or tax preparer, clients who qualify as “insolvent” avoid any income liability to the IRS as a result of the settlement.

If you have any questions regarding debt consolation or negotiation, whether that debt was accumulated in the form of credit cards or other loans call us at 612-335-2200 for a free consultation.  Each situation is different and requires independent analysis and advice.

With the risings costs of basic necessities such as groceries and rent, not to mention gas for our cars, along with wage freezes and layoffs, it is easy for even the most careful spender to become overwhelmed and allow credit card balances to creep up farther than we ever thought possible.  At Parker & Wenner our attorneys deal with these situations every day; we stop the harassing calls and deal with credit card companies and bill collectors directly for you.  We negotiate with credit card companies and their assigns to lower your payments so that you keep control of your accounts and avoid filing for bankruptcy.  We charge a flat fee based upon the number of creditors – there are no subscription fees, start up fees or monthly “maintenance” fees.

Here’s how we do it.

Debt Relief in Minneapolis

Our first step is always to meet with you, get a list of your creditors and pull a credit bureau to see who is saying what about you.  Knowing your credit picture, we then send letters to your creditors instructing them to deal only with our experienced attorneys.  This will stop the calls and letters to your home and cell phone.  We will also help you develop a budget to work within your means so that you manage your expenses and reduced your debts!  Based on this budget we will then work with your creditors to arrange affordable payments or payoff for you.  Here is where Parker and Wenner differ from the so-called credit counselors we deal directly with your creditors on your terms while you stay filling informed and in control of your accounts.  We do not take your money and make payments for you – you stay in control of your finances, and we help you discharge debt without bankruptcy.
Credit card companies want your money.  Once credit card companies realize that you are having financial difficulty, and in a position of insolvency they are willing to work with our attorneys and reduce your bill by 65 – 85 percent!  We will negotiate on your behalf to obtain the lowest payoffs possible.

Creditors have their own policies on reporting debt write-off to credit bureaus. Fair, Isaac and Company, who produce the FICO credit score that many lenders use, are on record that they will not deduct any points from your score for being on a DMP. Having fallen behind in your payments, a DMP may improve your chances of getting credit in the future since you will have repaid your (negotiated) debts in full.  Banks and creditors want customers to take responsibility for their obligations; unlike most bankruptcy, working with the credit company to repay your debt tells banks that you are willing to be responsible for your own obligations.

Bankruptcy should be a last resort solution.  The consequences of filing bankruptcy can reach far beyond your credit report as a bankruptcy is also a public record.  Filing bankruptcy can impair your ability to rent an apartment, purchase auto insurance and may even impact a real estate purchase you make in the future.  If, however, it is determined that bankruptcy is an appropriate action, we will work with you to insure you receive appropriate counseling in that regard.

For help with your debts, call Parker & Wenner at 612-355-2200 for a free telephone consultation or visit our website at www.parkerwenner.com.  We will help you evaluate your credit risk, work with you to create a realistic budget and negotiate on your behalf to obtain payments you can afford.