When the going gets tough, the tough get going. Millions of Americans are finding the burden of debt overwhelming. CNN Money Reports that according to the American Bankruptcy Institute, filing for bankruptcy was either a forced or chosen strategy used by 1.46 million individuals and 36,000 businesses in 2011. 2012 projections are very similar. Throughout the EU, the data is consistent. Personal insolvency is a global epidemic.
At the same time, real property foreclosures are at record highs in the world’s most established economies. The causes of this suffering are numerous, including a worldwide employment crisis, unrealistic purchasing habits and careless money management. As a result, persons find that when the unexpected event occurs, we are not financially equipped to deal with our obligations. In simple terms, our liabilities outweigh our income.
And, when debt outweighs income, the situation either requires a cash infusion or outstanding cash management. A combination of the two is best.
Before the recession of 2008, too many consumers were ensnared in a lax financial market where credit was easy and jobs were aplenty. When lumbering under the weight of debt, it is easy to direct the blame or excuse yourself because your life was confronted by the most intimidating of all possibilities; a loss of anticipated income.
When you fear answering the phone, or reading your mail, you know you are in a serious predicament with repercussions. You do have options and if you want relief, ignoring your options actually deepens the hole.
When the going gets tough, the tough get going. Regardless of the amount of your debt or the amount of lost income, you have valid choices to resolve your situation.
There are two types of debt; secured and unsecured. Unsecured creditors have the most to lose because they have no security. If you default on a secured loan, the lender can take possession of the secured asset. In most economies, a secured lender who does not retrieve full payment for the unpaid portion of the loan can file a claim for the balance. However, at that time, the claim is unsecured. Remember this; you may be in debt, but in the end, you are in the driver’s seat.
Nicolas Robin Westbrook, an attorney with AAVVO.com identifies your options.
Do Nothing – Unfortunately this is the most common choice by persons in debt. Let’s be clear that when the debt is too heavy and there is really no way out without the cooperation of creditors, the debtor still holds the reins. You should act, even if it means filing bankruptcy. At least you can wipe the slate clean and start anew. You will have poor credit, but with a good job or two and wiser spending habits, you will see and enjoy the light at the end of the tunnel.
Negotiation – Addressing your debt through negotiation is applied to several possible solutions, like credit counselling, debt settlement or debt mediation. By any name, the principle is the same. The debtor, by himself or by herself, negotiates the terms of repayment with the lender. There are five stages that classify debt:
- Late payment
- Default
- Collection
- Bad debt
- Litigation
The best stage in which to negotiate terms is the late payment stage. However, it is possible to negotiate favourable terms at any time. The important consideration is to negotiate with persons in authority to accept new terms. Be sure to get the negotiated adjustments in writing. Do not agree to restricting plans that you know you cannot afford.
Voluntarily Structuring Your Debt – If you are facing a number of obligations, you can negotiate with all creditors differently. Most likely, secured debt should be prioritized.
Bankruptcy – Mandatory re-structuring of debt through the legal process of bankruptcy protection provides for either an outright, unstructured bankruptcy or through a restructured bankruptcy where your assets are protected. Under an outright bankruptcy, all obligations are legally discharged. Under structured bankruptcy, you can offer to pay a percentage of your unsecured debt and a percentage of your secured debt. Often times, the secured creditor is unwilling to accept restructuring. In that case, you file a unstructured bankruptcy and let the chips fall where they may.
Last but not least; you may have made mistakes. Your lender may have made mistakes. What matters is that you get out from under the debt and not make the same mistake or fall prey to the same mistakes in the future.