We often receive calls from clients who have a significant amount of debt
overall but it is split up with many various creditors and the debts are
fairly small. These clients are usually interested in either having us
defend them in lawsuits and settle the matter or try and reach a settlement
with the creditor prior to litigation.
Bankruptcy to their surprise may be the better option in these sort of situations.
There are a few reasons for this, the first of which is the issue of legal
fees. If a client calls us stating that he or she has a
LVNV, American Express and Capital One account in default, this means that
we have to handle each one of those cases separately. Whether the cases
are in pre-litigation or especially when they are in litigation, this
means that we have to charge clients a separate fee for every case. The
fee even at a discounted rate will equate to a minimum of at least a few
thousand dollars or more. On the other hand, filing for
Chapter 7 bankruptcy, if the client is eligible, can be a quicker and simpler approach and
especially a cheaper one since it consists of one flat fee to discharge
every penny of debt that the client has obtained.
Consumers must qualify for Chapter 7 bankruptcy which is not always simple
to do but in many instances it is the easier option. Many people believe
that the difference for credit purposes is vastly different, but in reality
a bankruptcy may stay on a credit report for up to 10 years while a settlement
may stay on for up to 7 years: not such a major difference. A bankruptcy
will remove all the negative accounts and will leave the consumer with
a fresh start and clean credit report while settling one or many accounts
will still leave a negative status on a credit report even if it is reported
as settled. Generally each of these has its purpose and can be used well
in certain situations. If there is just one account in collection or in
suit then it certainly does not make sense to file for bankruptcy but
if there is a substantial amount of debt, many small accounts or many
lawsuits or potential
wage garnishments in line then it may make more sense to file bankruptcy. It is important
to discuss both options when deciding which route to take with debt.