Chicago Debt Relief Has Many Forms: Which is Right for You?
Illinois residents don’t need to scroll through their feed to know times are tough. Inflation and unemployment numbers continue to rise, making it harder to maintain the lifestyle you worked so hard to achieve. If the last few years have resulted in living on credit and a plummeting FICO score, you may be ready to consider some form of debt relief. Talking with an experienced debt relief attorney in Chicago can help you understand the options available and make the choice that’s right for you.
What is Debt Relief?
Debt relief comes in many forms, from debt settlement and debt management to Chapter 7 and Chapter 13 bankruptcy. Each option has pros and cons. Despite their differences, they share several components. Among them include:
- Various fees
- Negative impact to your credit
- Utilize a third-party
On the upside, financial relief may be around the corner if you have more debt than money.
Debt Management Plans
Often developed by debt consolidators or credit counseling agencies, debt management plans do not settle your debts or offer loans. However, they typically have agreements with credit companies and financial institutions to provide lower interest rates when you make payments through the agency/debt management company. This allows you to pay more on the principal you owe and less interest, which enables you to pay the amount you owe faster.
Debt management companies charge for their services and may have various fees, such as:
- Monthly maintenance fees
- Startup fees
- Other hidden fees
As a result, you may not be saving any money at all. You’ll likely have to close all your credit cards, and these plans only work for unsecured debt. If you need help paying your mortgage or auto loan, this debt relief may not be for you. Generally speaking, payment plan terms are five years or less. If you cannot pay off the debt in that time frame, Chapter 13 may be a better option.
Debt settlement occurs when creditors settle for less than what you currently owe, expecting you to pay the new, agreed-upon amount in full. Also known as debt adjustment, this process is typically handled by a third party. Not all lenders will accept debt settlements, and the process is often complicated for those that do.
In addition to the settlement amount, you’ll also be charged a fee for the third party’s services. They negotiate your debt and withdraw funds from an account that you set up for them. In some cases, the settlement is a lump sum; in others, it’s a monthly payment. Debt settlement companies may charge between 15% and 20% of the original debt amount, not the final amount you pay. This could be thousands of dollars, depending on how much you owe.
Attorneys often charge a flat rate. If you carry an enormous debt burden, hiring a lawyer may be less expensive. Legal professionals also have a deeper understanding of the law, which means they may be able to negotiate a better deal with your creditors. The entire process can take up to four years, and you’ll have to pay taxes on any forgiven debt. Ultimately, whether you hire a credit settlement company or lawyer for Chicago debt relief, your credit will likely take a hit.
Chapter 13 – Debt Repayment Plan
Medical bills and underemployment are two leading reasons Illinois residents have more debt than they can afford. If you have consistent income but cannot make any headway on your debt, Chapter 13 bankruptcy may finally help you get ahead, and it can stop creditor calls, wage garnishment and lawsuits. If you are a homeowner and have a vehicle, Chapter 13 can also prevent foreclosure and avoid repossession.
The main feature of this type of bankruptcy is the payment plan. Your attorney negotiates a payment plan based on what you can afford after the allowed exemptions. Afterward, you make one monthly payment to the trustee, who distributes an agreed-upon amount to each creditor. If you have made the required payments at the end of three to five years, most remaining unsecured debt may be forgiven (wiped out). Your credit will take a hit, but you’ll be free and clear to start rebuilding it the right way.
Chapter 7 – Debt Discharge
Unemployment and unexpected expenses, such as medical bills and catastrophic events, often result in mountains of unsecured debt. If you cannot make minimum required payments, dodge daily creditor calls and are at risk of losing your home, Chapter 7 bankruptcy may provide the financial relief you need.
Although you must liquidate non-exempt property, you have options when choosing which exempt property you want to keep. The process is often completed in about six months. While Chapter 7 stays on your credit for seven to ten years, you can begin rebuilding your credit almost immediately.
Debt Relief Help in Chicago
If you’ve been struggling financially since the pandemic began, or even before, you have suffered long enough. Contact Kevin Benjamin or call 312-853-3100 to schedule a free consultation. He can help you determine which option best fits your needs. He can negotiate with creditors, help you navigate the Chicago debt relief process and handle student loan issues.
Next month we’ll cover rebuilding your credit. As we head toward the end of 2022, acting now can help you start 2023 with a strong financial plan.