Arizona debtors have several options, which include bankruptcy, credit counseling, and debt settlements.  At Hastings and Hastings, our client’s goal is to pursue the right strategy, which will save time and money.  The other goal is to avoid the common mistakes made by individuals that do not seek legal advice when dealing with debt.  The options discussed below summarize credit counseling and debt settlements, with separate pages dedicated to Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

Credit Counseling Overview

The first debt relief option to consider is credit counseling. This option is ideal only for individuals or families that have some discretionary money left over each month to pay a limited debt amount, but are still struggling each month to make ends meet. Credit counseling provides the education, tools, and creditor relationships to create and manage a budget.

Common Mistakes

There are several pitfalls to avoid with credit counseling.

1. Avoid debt management companies. This is not credit counseling and is not a recommended debt option.  These companies charge high fees, provide limited if any help, and cannot stop lawsuits and wage garnishments.
2. Avoid credit counseling if trying to repay the debt would take more than several years to accomplish (not including a car or home), in which case repaying the debt would be detrimental to your immediate financial health, such as the ability to save money and contribute towards your retirement accounts, and future goals of buying a new car or house.
3. Speak to an experienced debt attorney that can confirm credit counseling is a viable option.  In addition, an attorney can refer you to a reputable not-for-profit organization after exploring all of your options.

Debt Settlement Overview

The second option to consider for debt relief is “debt settlement.” This option is ideal only for individuals that either make too much money for a Chapter 13 bankruptcy relative to their debt amount, or have non-exempt assets, which would limit a debtor’s option for Chapter 7 bankruptcy relief. Typically, we recommend debt settlements as an option for debtors that have large brokerage accounts or other non-exempt assets that can be sold to repay debts at a negotiated amount. This is a complex decision, whereby the money might be better allocated to “negative estate planning”, which considers protecting the assets prior to filing bankruptcy. This involves precise legal advice, as negative estate planning is a delicate balance of protecting assets while avoiding fraudulent transfer laws and preferential payment statutes.

Common Mistakes

Debt settlement can be a costly mistake if used in lieu of a better option.

1. Do not borrow money to settle debt if bankruptcy is a more appropriate option. Both debt settlement and bankruptcy have a temporary adverse affect on your credit, however, borrowing money from a family member, friend, or retirement account, versus exploring bankruptcy first, can be a disastrous financial mistake.
2. Time your debt settlement accordingly.  The key to negotiating debt is knowing when to make or accept a creditor’s offer, which at minimum requires the debt to be quite delinquent.
3. Understand that debt settlement creates a taxable event.  Negotiating debt generates “debt forgiveness” income.  However, most debtors can avoid this tax as “excludable income.” Debtors should always speak with a tax advisor or debt attorney that understands the IRS’s debt forgiveness rules prior to settling debt.

Attorney Comments:  The underlying theme behind credit counseling, debt settlements, and bankruptcy is time and money.  At Hastings & Hastings, we provide the meaningful advice to create a debt relief strategy that will provide the fastest and most comprehensive relief possible.  Call for a complementary consultation to explore your debt relief options (480) 706-1100.