Peter Francis Geraci A Bankruptcy Blog - Chapter 7 & 13

Recognizing you are in debt is the easy part.  I have spoken with many people who laugh about the severe amount of unsecured debt they accumulated. I’m missing to see the joke.  When you have a substantial amount of debt, it’s really not a laughing matter. Yes, creditor threats can be so ridiculous that it can seem comical. But, if collectors are calling you to the point of being afraid to actually answer your home phone – it’s time to put the comedy aside and do something about it.

With our current economy, a lot of Band-Aids for debt wounds are available. You can pay $10 per month minimum payment and sure the collection calls will stop but the debt wound still exists.  I have rescheduled more appointments for potential bankruptcy filers based on nothing more than “I don’t know if I want to file.” For most people contemplating bankruptcy, there is no reason not to file. With more debt than income, what are you supposed to do? Why spend the rest of your life, making minimum payments?  You are not moving forward – you are barely moving side-to side. I’m addressing the people with more than $10,000 in debt and are fully employed.           

For a working person, a Chapter 13 bankruptcy is a great solution.  You pay back what you can afford to pay back without the interest.  It answers the “moral” question of I spent it so I should pay it (is it moral for some creditors to slash your credit limit, increase your minimum payment, and charge you close to 30% in interest?).  Not to mention, a Chapter 13 repayment has no interest!  For people who are working and have credit card debt – the interest is what makes many people fall behind and get to the point of needing a bankruptcy. 

In a Chapter 13 you are able to protect all of your assets.  It’s a repayment plan so there’s no reason to lose your comic book collection or your Porsche 944. Depending on your individual debt, income, and assets you could be paying as low as 10 percent of what you owe.  A filed Chapter 13 bankruptcy allows you to keep your Chapter 7 option available – just in case. Life happens and having the safety net of Chapter 7 debt liquidation is comforting.

Realistically, if you have more debt than income in a month and you want to want to get a handle on things – bankruptcy is your best option.  It is the sane way of getting control of your situation.  I have heard more make-shift solutions for paying off debt and ultimately whether it’s today, tomorrow or five years from now, these people file a bankruptcy.  Debt is not a laughing matter; it can be a bar to your financial future.  Instead of doing the debt negotiating, money borrowing, ignoring dance of the debtor – file a bankruptcy and in a couple of months you can actually feel some relief.

For years, Michael Scott and his office clan have entertained millions of Americans on the hit NBC mockumentary series, “The Office.” Its popularity is due, in large part, to the old comedy trick that the audience knows something that the characters don’t. In the case of “The Office,” the television audience is aware that the events on the show are fictitious, and can therefore find humor through satire. However, in the fourth season episode “Money,” the show completely misleads its viewers about the life-saving system of bankruptcy, and actually leads them to believe that it’s a procedure to be avoided. So, where’s the comedy when it’s the audience that’s been tricked?

“I…DECLARE…BANKRUPTCY!” Haha, very funny, Michael Scott. We all know that that’s not how it works. The audience does realize that Michael’s excessive spending and poor budgeting has led him to reevaluate his lifestyle (like, not buying magic kits or bass fishing equipment), but in our real world, the audience probably understands just about as much about bankruptcy as he does. Michael believes and even states, “In Monopoly, you go bankrupt, you lose.” Well, that is true, but Monopoly is also a 1930s-era board game and this is real life: in this world, you go bankrupt, you get another chance at financial freedom.

After Michael literally declares the word bankruptcy, one of the office accountants decides to look over his budget and offer some professional advice. This is where experienced accountants, attorneys, and burned debtors know that “The Office” is doling out some pretty bad advice. Michael is advised to meet with a debt consolidator by Oscar Nuñez, the office accountant – red flag! Wrong! An educated accountant would know that debt consolidation is really a scam: first of all, it rarely works, and second, the program tricks clueless debtors into extending the terms of their repayment (which is why interest is lowered). I don’t know about anyone else, but I’d like to see what university gave Oscar Nuñez a degree in accounting!

So, who is responsible for giving millions of Americans bad advice? Is it the producers, the writers, maybe even the network? It looks like that adage “Don’t believe everything you see on T.V.” remains true to this day. It’s really up to the American people to make themselves aware of the subjects presented on television, especially regarding finance and debt. Don’t be like Michael Scott – consult real bankruptcy attorneys, like those at Geraci Law, LLC. They’ll give you the kind of advice NBC didn’t – good advice!

Below is a list of rules created (and enforced) by the Federal Trade Commission (FTC) for debt settlement or debt relief. If you are currently enrolled in a debt relief program, look at the list maybe the agency you hired isn't meeting the standards. Filing a bankruptcy can eliminate your debt or you can file a Chapter 13 repayment plan through the court. A bankruptcy works within the law to provide you with a fresh start. Attorneys have an ethical obligation to do what’s best for their clients and you have the bankruptcy code on your side.

In 2010, the FTC amended the Telemarketing Sales Rule to prohibit debt relief firms from collecting fees before certain guidelines are met. An organization offering to settle a debt for a fee cannot collect said fee until the following guidelines are met:

- The debt relief service successfully settles or changes the terms of at least one of the consumer's debts

- There is a settlement agreement debt management plan, or other agreement between the consumer and the creditors that the consumer has agreed to; and 

- The consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.

Information courtesy of the FTC

Many of these organizations require debtors to have a "dedicated account" to put in funds to pay creditors. The Better Business Bureau (BBB) has received numerous complaints regarding access to these funds. To have a dedicated account the organization must meet the following guidelines:

- the account is maintained at an insured financial institution

- the consumer owns the funds including any interest

- the consumer can withdraw from the debt relief service at any time without penalty and will receive all unearned fees within 7 business days 

- the provider is not affiliated with the bank nor receives referral fees.

Information courtesy of the FTC

Now you have some of the regulations for a debt relief agency. The reality is the majority of agencies do not meet these guidelines. In a study done by the FTC, only 10 percent of consumers in a debt relief agency actually succeed despite the majority of advertisements claiming 100% success rates. Knowledge is power - if it sounds too good to be true, it probably is.

There is a great article called "Knee Deep in Debt" on the FTC's Web site. To read the article, click here.