How Can You Reduce Or Eliminate Your Unsecured Debt?

There are many businesses that advertise heavily with promises of reducing or completely eliminating unsecured debt. This is debt that is not backed by collateral such as a home or a vehicle. Credit cards and personal loans are examples of sources of unsecured debt. 

These companies negotiate with your creditors to reduce your principal (the amount you owe) and your interest rate. However, they may also charge exorbitant fees and your credit rating is decimated. There are other ways to rid yourself of burdensome debt, especially if you are under temporary financial duress. Some methods you can do yourself, while others require the help of experts in the field.

What can you do on your own to reduce or restructure your debt?

Contact your creditors

When you are underwater financially, nothing is worse than hiding from your creditors. Ignoring calls and written communication from your creditors leaves them unable to help you to resolve the situation.

Most creditors have programs or policies in place for when their customers are having financial difficulties. This may include deferring payments, accepting partial payments, forgiving late fees, or completely financing or restructuring personal debt.

Get help from consumer credit counseling services

These services are funded by the creditors themselves, and they offer free counseling as well as debt consolidation services. You can discuss your financial situation in person or over the phone, providing information about your income and unsecured debt.

If you have sufficient income to enter a debt consolidation program, your creditors will be contacted by the counseling service to try to get interest rates lowered and fees reduced. You will then be given a monthly payment to be paid to the counseling service and distributed among your creditors. A modest fee is charged for this service.

During your repayment period, creditors agree not to contact you or demand payment. When all debts are repaid, the repayment plan is complete.

What can you do if you don't have enough money for any of these types of repayment plans?

If your income has been significantly reduced, and you can barely pay anything toward your unsecured debt, you can file for Chapter 13 bankruptcy protection. This is known as a "wage earner's plan," because you must have sufficient income to qualify for the plan. 

Chapter 13 bankruptcy allows you to keep your secured property, such as your home and vehicle, but you must make all regularly scheduled payments in a timely manner. However, you are allowed to make arrangements to repay any arrears as part of the bankruptcy agreement.

Unsecured debt is repaid to creditors according to your available income after regular living expenses and secured debt payments are paid. If your income is only sufficient to pay monthly household expenses and house and vehicle payments, you may make very small or no payments to unsecured creditors.

A Chapter 13 repayment plan is in effect for either three or five years, depending on your income. All of your payments are made to a trustee of the bankruptcy court, who distributes them to your creditors for a modest fee. After your scheduled repayment period, all of your remaining unsecured debt is eliminated.

Of course, if you have substantial assets such as cash or personal property, it may be liquidated to satisfy some of your unsecured debt. However, there are various exemptions available, both federal and state by state, that protects some assets.

Bankruptcy law is complicated, so the services of a bankruptcy attorney can save you a lot of confusion and protect your assets to the fullest extent of the law. A bankruptcy lawyer can also fill out all of the forms, attend the mandatory meeting of creditors, and help you to avoid costly mistakes during a most difficult and stressful time in your life.

Everyone with personal integrity wants to repay their debts to the best of their ability, but financial difficulties can happen to anyone, and bankruptcy law is designed for just these moments. For more information about bankruptcy and your options, talk with a bankruptcy lawyer, such as Greg Dunn Bankruptcy Attorney.


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