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Clean Slate Podcast – Episode 11

In episode 11 of the Clean Slate Podcast, Wayne and Juan talk about when to file bankruptcy and the pitfalls of doing so.


About the Speaker:Juan Valladares

Juan Valladares is the Vice President of CreditGuard of America, Inc. and has been working in the credit counseling industry since 1997.

Juan began his career at a major answering service center, responsible for the training and supervision of over two hundred employees. Now in charge of managing CreditGuard’s counseling department, Juan’s management, organizational and motivational skills are all vital to the company’s success.

Juan is a devoted father of two and a passionate racquetball player who competes regularly to satisfy his competitive instincts. He has dedicated his professional life to helping people get out – and stay out – of debt.


“Clean Slate” Episode 11: When You Should (and Shouldn’t) Consider Bankruptcy

Wayne: The next thing I want to ask you, a lot of times it’s perceived as sort of the nuclear option, is the idea of when and why someone would consider bankruptcy over debt management or consolidation, and vice versa.

Because bankruptcy is a big deal, or at least it’s perceived as a big deal, I think by a lot of people, there are a lot of consequences with that but I don’t think it’s clear to the marketplace when it’s the right option and when it’s not, because it just seems so extreme.

Juan: Yeah bankruptcy is one of those things that I really, really try to avoid and it is one of those recommendations that our organization tries to steer people away from. Bankruptcy really is one of the last resorts. And bankruptcy really isn’t that simple anymore, either. It’s not like it used to be where a consumer can say, ‘Okay I owe $100,000 and I just can’t afford it anymore so let me go out there and pay a lawyer $200,000 and hopefully everything will be erased.’

There have been some laws that have changed in that whole entire sector, ones that require a lot of counseling sessions and maybe still even wind up making you pay back a portion of the money you owe depending on the financial status of the consumer.

Nevertheless, even with bankruptcy you still have to come to a certified agency that does credit counseling or debt management plans in order for you to still get the education of how to manage your debt before you can even qualify for bankruptcy.

“Bankruptcy should always be a last resort.”

Bankruptcy is not as easy but it’s definitely something that we try to avoid and that’s why when you contact our agency and speak to some of our certified credit counselors, we really go into a significant amount of detail in the consumers’ finances to determine an alternative plan to bankruptcy.

Like I said before, sometimes it’s just a loose restructuring of their monthly payments, and how they manage their finances can hopefully avoid that bankruptcy. Bankruptcy should always be a last resort. There are a lot of negative things behind it: number one, it’s going to affect you for a minimum of seven years. Most financial institutions won’t start to give you any money if you need it, so if you decide you want to get a loan or a car loan, or anything like that they just won’t do it for a period of time.

Even after that period of time does go, then all of a sudden they’re charging you significantly high interest rates. So all of a sudden if you go buy that car loan instead of getting that 2, 3, 4 or even 5% interest rates for your car loan you’ll probably get an 18 or 20% loan. So overall, you’re paying more money out of pocket when you file for bankruptcy because you’re going to have to get new loans, you’re most likely going to be incurring new debt and you might as well incur it at a low interest rate, not at a high interest rate.

Bankruptcy is definitely a last resort. Now, it’s available for people. There are many cases where individuals just can’t afford anything anymore; they’ve lost their job, or they’re just incurred too much debt, and things got over their head and bankruptcy is there for them. Of course we always recommend that they speak to a lawyer when it comes to that, we are not attorneys and it’s something that they should always do, but it should definitely be done as a last resort because of the consequences–especially when it comes to your credit, it’s just very, very dire. In addition to that, the way I look at it–I’m kind of old fashioned when it comes to this–you’ve incurred your debt you may as well go ahead and take the appropriate actions to try to pay off your own debt. You have to be a responsible person when it comes to that.

I’ve always believed that education is extremely important when it comes to anything–when it comes to your health, your finances, your family, whatever it may be, you need to educate yourself so you don’t commit the same mistakes. I’ve always thought that bankruptcy is a very easy way to try to just say, ‘Okay! I’m done,’ and get rid of the debt, but you wind up falling back into the same situation. And if you fall back into the same situation, then most likely you’re going to want to try to file bankruptcy again which you can’t do–you can only can do it every five to seven years–but you’re just going to repeat that same thing over and over again.

So bankruptcy should always, 100%, be the last resort. I always feel that a debt management plan and a consultation–it’s free, anyway; give us a call because you might as well go through that process first to see all of the different, alternative ways of getting out of debt before someone says, ‘Okay, I can’t do this anymore. I’m going to just go ahead and file for bankruptcy.’

Wayne: Right, because it really isn’t that easy–just going and filing bankruptcy–because you need to speak to the attorney who is then going to scrutinize your odds of getting past a judge as cleanly as possible before they’re even going to talk to you it seems like.

They’ll talk to you and look at your finances, largely the same way CreditGuard would and say ‘Ahhhhh, I don’t think a judge is going to help you with this you need to go find a way to pay this off,’ or, ‘Okay, I think this has a chance,’ because a lot of the time I feel like they lead people in with ads that say ‘Don’t pay us unless you get the judgment’ and I don’t think people always understand that you’re not just going to enter bankruptcy and then come out of bankruptcy and then not be able to get a loan for seven years, it’s a much harder road than that.

Juan: Yea, it’s a very, very difficult road once you file bankruptcy. Like I said before, the laws have changed so it’s not as easy as it used to be in the past. You hit it right on the point: the lawyer is going to sit down with you and also look at your debt, your income and expenses. A lot of recommendations people make is to not make your payments anymore so it looks like you’re under hardship but then during that time you’re only incurring more and more debt. And that debt lull can become very great.

Then if you need some type of loan for something, you’re not going to be able to get it during that time and/or during the next seven years. The judge may very well say, ‘You know what? I’m not going to get rid of all of your debt. It seems like you qualify for bankruptcy but for a payment one you have to pay back 30% of this or 50% of it,’ so you’re back to the same square but you’re now paying 50% of a larger debt because you weren’t making payments on it based on the recommendations from an attorney.

Wayne: Yeah, that happens a lot. I think that happens a lot. I don’t think it’s ever a complete erase in a whole lot of situations and then you wind up regretting it because now you still have a ton of money to pay and you have absolutely terrible credit for the next seven years.

It really winds up being a lot longer than that because they’re just not going to start giving you great interest rates at the end of that seven years. You can’t do things that cost a lot of money because you don’t have the resources now in order to manage your life, manage your family. I think it requires a certain amount of caution before considering that.

Juan: And education is everything. There are so many different types of programs out there that are available for consumers. Besides, you can contact your creditors directly; they may have some alternative ways to help you out in meeting your monthly obligations, or lowering your interest rates . . . temporary solutions.

Obviously debt management plans are great because they look at your overall finances or how to manage your money and all types of debt. And bankruptcy is another way of getting rid of your debt, but at the end of the day the way I look at it is educating yourselves and finding out what’s available for you and doing some research before making that final decision.

And that’s what is so good about debt management plans: because it’s an overall look at your finances, not just your credit cards or mortgages, or anything like that.

We have a significant amount of knowledge when it comes to ‘Okay, this is what bankruptcy does, this is what debt settlement does, this is what debt management does, this is what contacting your creditors directly will give you.’

So we’ll give you some of that information, but most importantly do your own research. Most consumers when it comes to managing their debts always give us a call back, always look for us because of our history, because of our overall experience with managing debt. Period.

Wondering if our services might be a good fit? Call 1-800-500-6489 or visit our Debt Solutions page for more information on how we can help you get out of debt. The call and initial consolation are free, so what are you waiting for?