Fight Debt Now
Links to other articles:
If you're being sued for debts, you may panic and look for the easiest way out. Bankruptcy may seem to be a solution because actions by the debt collectors are "stayed" (stopped) during the bankruptcy proceedings. But is it the best choice? I believe there are much more effective ways to handle old debt, especially credit card or merchant account debt (old bills from gym memberships, department stores, telephone companies, etc.) that has been sold to a debt collector. Panic is not necessary, and bankruptcy is often not the best solution in a real-world sense. Here's why.
Debt is divided into two types: "secured," and "unsecured." Secured debt means that the debt has specific assets backing it (home loan, car loan). If you miss payments, you can have your house foreclosed or your car repossessed and sold to pay off the loan. These things "secure" the debt and can be sold if you stop making payments. The problem with bankruptcy is that it doesn't provide much protection for secured debts. The courts generally regard the security as the property of the lender and consider it unjust to let you keep it if you don't make the payments. So they often "relieve" the stay and allow the lender to foreclose.
Unsecured debt (credit cards, merchant accounts, etc.), on the other hand, is debt that is not secured. It isn't attached to any specific assets. This means you must be sued personally before the debt collector can collect any money from you. Debt collectors often don't mention this fact to people they are harassing, since they want you to believe you could lose house and home at any time. Remember this: on an unsecured debt, the debt collector can only collect if it can get a judgment against you. Then it can collect money by "enforcing" the judgment. They can garnish your wages or attach (grab) your bank accounts. But this can be difficult for lots of reasons.
With unsecured debts in bankruptcy--unlike secured debts--the debts are simply added up and paid according to how much money the bankrupt person has after everyone else has been paid. So bankruptcy could offer some help with unsecured debt. But...
Before you go that route, you should consider that you have an excellent chance of beating the debt collector. You can defend yourself from the collection suit of an unsecured debt (without the harm that bankruptcy does to your choices in life). And if you try to defend yourself, but don't win, bankruptcy still remains an option. They can't collect till after they get a judgment, and bankruptcy could still stop the collection process at that point.
Better results, less cost, little risk. That's why it's often better to defend yourself against credit card debt than to seek bankruptcy protection. For help in defending yourself if you're being sued, check out our products.