Debt Free: Bankruptcy And Debt Management To Overcome Your Financial Burden

Ralph Estep Jr.:
00:00

Have you ever felt like you're drowning in debt? That no matter how hard you try, you just can't seem to get your head above water? It's a scary feeling. It's one I've actually felt myself. It's one that can leave you feeling hopeless and lost. But I've got great news: even in the midst of financial struggles, there is always hope. And there are always options. Today, we're talking about two of those options. We're going to talk about debt management and bankruptcy.

Ralph Estep Jr.:
00:30

Don't worry, we're going to explore the pros and cons of each. We're going to talk about how to avoid scams, because yes, there are some debt management scams out there. And we're also going to discuss when it might be time to consider the difficult but sometimes necessary path of bankruptcy.

Ralph Estep Jr.:
00:47

Welcome back to the show where we tackle your financial questions from a Christian perspective. I am so glad you're joining me today. Yesterday, we talked about striving for excellence in all areas of our lives, including our finances, as a form of worship to God. It was truly a powerful conversation, and I hope it encouraged you to view your financial journey through a new lens. If you missed it, you can find it on our website at askralphpodcast.com.

Ralph Estep Jr.:
01:15

And while we're talking about that, tomorrow, we're going to dive into a topic that's near and dear to my heart: the impact of smartphones on our children. We're going to explore the potential pitfalls, talk about the benefits, and more importantly, how we can guide our kids towards healthy tech habits. So be sure to tune in for that tomorrow.

Ralph Estep Jr.:
01:33

But for now, let's turn our attention to today's topic: navigating the often-confusing world of debt management and bankruptcy.

Ralph Estep Jr.:
01:44

As always, let's start off with a Bible verse to help us ground ourselves for today's discussion. This particular verse comes from the book of Matthew, chapter 11, verses 28-30. It says this: "Come to me, all you who are weary and burdened, and I will give you rest. Take my yoke upon you and learn from me, for I am gentle and humble in heart, and you will find rest for your souls. For my yoke is easy, and my burden is light." So let's talk about how to find rest from those financial burdens.

Ralph Estep Jr.:
02:24

Let's get to it. Debt management and bankruptcy are very different paths, each with its own set of advantages and disadvantages. Let's start first by talking about debt management. Debt management programs are designed to help you repay your debts in full, typically within three to five years. You do this by working with a credit counseling agency.

Ralph Estep Jr.:
02:46

Well, let's do a little deeper dive and talk about how it actually works. Credit counseling works like this: you'll start by talking to a credit counselor who will review your finances. They'll look at your income, expenses, and debts, and they'll help you create a personalized budget and develop a plan to manage your debt.

Ralph Estep Jr.:
03:07

One of the things they might discuss with you is what's called a debt consolidation loan. In some cases, the credit counseling agency might consolidate your debts into a single monthly payment, often with a lower interest rate. The truth is, folks, you have to be careful with this, but it can make it easier to manage your payments.

Ralph Estep Jr.:
03:19

The credit counseling agent will then negotiate with your creditors on your behalf to try to lower your interest rate. They're going to look at ways to get them to waive any late fees. Their overall goal is to create a more manageable payment plan.

Ralph Estep Jr.:
03:37

You're then going to start making monthly payments. You'll make a single monthly payment to the credit counseling agency, and then what they'll do is distribute it to your creditors according to an agreed-upon plan.

Ralph Estep Jr.:
03:48

Well, that sounds great. So let's talk about the pros of debt management. Number one, reduced interest rates: negotiating lower interest rates can save you money and help you get out of debt faster.

Ralph Estep Jr.:
04:01

Number two, simplified payments: consolidating your debts into a single monthly payment can make it easier to stay organized and avoid missed payments.

Ralph Estep Jr.:
04:11

Number three, it offers some credit score protection: while enrolling in a debt management plan can initially lower your credit score slightly, it can help you rebuild your credit over time by making consistent on-time payments.

Ralph Estep Jr.:
04:25

Now here's the thing you need to be worried about: When you go into one of these plans, oftentimes they're going to charge their fees upfront. So you may find that some of your creditors aren't getting paid right away. You want to check with the credit counseling company you're working with and make sure they've negotiated this with creditors, so they don't end up looking like you're not making payments and ruining your credit.

Ralph Estep Jr.:
04:48

Number four, avoidance of bankruptcy. Debt Management can be a good alternative to bankruptcy, allowing you to avoid the more severe consequences of filing.

Ralph Estep Jr.:
04:58

But of course, with anything, there are some cons of debt management. So let's jump right into those.

Ralph Estep Jr.:
05:03

The first one, and I kind of alluded to this a few minutes ago, are fees. Credit counseling agencies typically charge fees for their services, which can vary depending on the agency and the complexity of your situation. So that's something you want to study, you want to understand, and get them to put out in writing upfront.

Ralph Estep Jr.:
05:19

Number two, a time commitment. Management plans usually take several years to complete, requiring discipline and commitment. So it's not going to be this overnight thing.

Ralph Estep Jr.:
05:29

As an example, I'll give you a funny story. This morning, my wife was out walking our dogs here on the farm. And it's the time of year when the turtles are coming out and laying eggs. And you think about the turtle, the turtle doesn't run across the road, it takes a very slow, methodical approach.

Ralph Estep Jr.:
05:43

So that's the same as with these debt management companies. It's a time commitment, it's going to take time for those things to lock into place and to help you down the road.

Ralph Estep Jr.:
05:52

Now, number three, credit score impact. As I mentioned earlier, your credit score may initially dip when you enroll in a debt management plan. But it should improve as you make consistent payments. You just have to really understand the plan and maybe make sure they're communicating with your creditors, so your creditors understand that they're going to get paid.

Ralph Estep Jr.:
06:12

And number four, limited eligibility. Not everyone qualifies for debt management programs. Your eligibility is going to depend on your income, your debt level, and your credit history.

Ralph Estep Jr.:
06:23

So let's now spend a few moments to discuss avoiding scams. Unfortunately, the debt relief industry is rife with scams. So I've assembled some red flags to watch out for.

Ralph Estep Jr.:
06:35

And the first one is this: upfront fees. Legitimate credit counseling agencies are prohibited from charging large upfront fees before providing services. If you meet with one of these folks and they say something along the lines of what your first four or five payments are going to go to us to build up our fee structure, I will go in the other direction.

Ralph Estep Jr.:
06:53

The next thing is guaranteed results. You've got to beware of companies that guarantee to eliminate your debt quickly or for a fraction of what you owe. And this goes along with many things in life. If it sounds too good to be true, it probably is the truth. I suppose you didn't create these debts overnight, so eliminating them is going to be a process.

Ralph Estep Jr.:
07:13

Again, if you listen to this show, you know I talk about the journey all the time. It's not a destination; the destination is to be debt-free. Absolutely. But getting there is not going to happen overnight. It's going to be a journey.

Ralph Estep Jr.:
07:26

The next thing is pressure tactics. Don't let anyone pressure you into making a decision before you're ready. This is a time to take your time, do your research, and choose a reputable agency.

Ralph Estep Jr.:
07:38

Well, now let's talk about the dreaded bankruptcy. It is a word that carries a lot of weight and for good reason. Bankruptcy is a legal process that allows individuals and businesses to discharge their debts or create a plan to repay them under some form of court supervision.

Ralph Estep Jr.:
07:54

Listen, folks, this is a serious decision with long-term consequences. And it should not be considered as your first thing to do. I always say it should be a last resort. I'm also going to be very clear here. I am not an attorney. So please do not consider anything I'm saying here as legal advice.

Ralph Estep Jr.:
08:12

If you're thinking about doing bankruptcy, I'm going to strongly encourage you to schedule a consultation with a qualified attorney. If you're contemplating going down that road, and you want to make sure you select a bankruptcy attorney, somebody who's done this before. This is not your general practitioner attorney.

Ralph Estep Jr.:
08:28

So let's start by talking about the types of bankruptcy. There are really two main types when it comes to individual bankruptcies.

Ralph Estep Jr.:
08:34

The first one is what's called Chapter Seven bankruptcy. It's what they call liquidation. This type of bankruptcy involves selling off your non-exempt assets to repay your creditors exempt assets, such as your primary residence and vehicle.

Ralph Estep Jr.:
08:47

Now, there are certain values that are limited or protected. Chapter Seven bankruptcy can provide a fresh start for people who are overwhelmed by debt and have limited income. It's what most people consider that liquidation: you're going to get rid of all of your debts. Like I said, if you've got a home or you've got a vehicle, your attorney will be able to structure that depending upon how much equity you have in it.

Ralph Estep Jr.:
09:09

Now, the other type is what's called Chapter 13 bankruptcy. You'll hear these called a Chapter 13 plan or a reorganization. This type of bankruptcy allows you to keep your assets but requires you to create a repayment plan to repay your debts over three to five years. Chapter 13 Bankruptcy is often a good option for people who have a steady income and want to avoid foreclosure or repossession.

Ralph Estep Jr.:
09:32

Now, the thing you need to understand with a Chapter 13 plan, it's sort of similar to that debt management plan. And that is not going to be an immediate thing. You're going to pay monthly to a trustee who is going to disperse a portion of those funds, both for the fees that they're going to charge you and to your creditors, but your creditors aren't going to get 100%. So you need to know that. I did a show on bankruptcy a few weeks ago and I encourage you to go check it out on our website.

Ralph Estep Jr.:
09:56

Well, let's have a frank discussion on the effects of bankruptcy. A lot of people do end up in that with not really understanding the long-term effects of that filing for bankruptcy can have a significant impact on your life. Trust me, I've seen this many times. This includes things like your credit score; a bankruptcy will stay on your credit report for seven to 10 years, which does make it more difficult to obtain new credit during that time.

Ralph Estep Jr.:
10:20

Now, I'm going to say this: sometimes your credit situation is so poor that there's no other option. We're going to talk about that a little bit later in this show. But you may actually see an improvement in your credit score, maybe even 12 to 24 months after filing.

Ralph Estep Jr.:
10:34

The second thing, it's going to impact is future borrowing. You might find it more challenging to get approved for loans, mortgages, or even renting an apartment after filing for bankruptcy. A lot of mortgage underwriters are going to want you to be two to four years outside of bankruptcy before they let you buy a home. And unfortunately, some apartment places and rentals are going to look at your bankruptcy and it may impact your ability to get a place to live.

Ralph Estep Jr.:
10:59

The next thing is employment. Some employers may conduct credit checks as part of their hiring process. And a bankruptcy filing could negatively impact your prospects.

Ralph Estep Jr.:
11:08

And last but not least, there's an emotional toll. Bankruptcy can be a stressful and emotionally draining experience.

Ralph Estep Jr.:
11:15

So I say all these things because you've got to think about it. So you might ask, 'Ralph, when should I consider bankruptcy?' Again, I am not an attorney, so I want you to consult with a bankruptcy attorney, but I want to give you some ideas.

Ralph Estep Jr.:
11:28

So while bankruptcy should be a last resort, there are situations where it may be the best option. Here are a few signs that bankruptcy might be worth considering in your situation.

Ralph Estep Jr.:
11:38

And the first one is this: if you've got overwhelming debt, if your debts have become unmanageable, and you see no realistic way to repay them, bankruptcy may provide a way out. It could be that you are getting constant phone calls, or you're getting constant threats from these creditors.

Ralph Estep Jr.:
11:55

The second thing is if you're faced with garnishment or foreclosure. If your wages are being garnished, that's when some creditor comes in and takes part of your weekly or bi-weekly or monthly pay. When you're facing foreclosure, bankruptcy can temporarily halt these actions. It's what's called the automatic stay, which makes creditors stop their collection activities right away.

Ralph Estep Jr.:
12:17

Another thing that might be triggering bankruptcy is harassment from creditors. I mentioned this a few minutes ago. If your creditors are constantly calling or threatening legal action, bankruptcy can provide relief from that harassment.

Ralph Estep Jr.:
12:30

Now managing the decision between debt management and bankruptcy is deeply personal. And it depends on your unique circumstances. I can't sit here today and tell you here's when you should file bankruptcy or here's when you should use debt management. It's essential to seek guidance from a qualified financial adviser and a bankruptcy attorney to explore all your options. And in the end, make an informed decision. Remember, no matter how difficult your financial situation may seem, there is always hope, my friends. God is faithful, and He will never leave us nor forsake us.

Ralph Estep Jr.:
13:03

So here are a few actionable steps you can take today.

Ralph Estep Jr.:
13:06

And the first one is this: assess your situation. You've got to take a close look at your income, your expenses, and your debts. It's time to create a budget and determine how much you can realistically afford to repay each month.

Ralph Estep Jr.:
13:20

Number two, like I talked about, seek professional guidance. Contact a reputable credit counseling agency or a bankruptcy attorney to discuss your options and get personalized advice.

Ralph Estep Jr.:
13:31

I also offer what I call financial counseling services. And you can find information about scheduling an appointment with me right at our website. That's AskRalphPodcast.com/store. Another thing I want to definitely stress is to pray for wisdom. We're a Christian show. We started off by talking about how we can improve our finances from a Christian perspective. So this is the time to ask God for guidance, and more importantly, discernment as you navigate this challenging season of your life. He will give you wisdom generously if you ask him for it.

Ralph Estep Jr.:
14:07

Well, folks, that's all the time we have for today. I hope this episode has provided you with valuable information and guidance as you navigate this complex world of debt management and bankruptcy.

Ralph Estep Jr.:
14:18

Don't forget to visit our website at askralphpodcast.com for additional resources and articles. And while you're there, you can also sign up for our email list where you'll receive daily encouragement and financial tips delivered straight to your inbox. And if you found this episode helpful, do me a favor, please share it with your friends, family, or anyone you know who might be struggling with debt.

Ralph Estep Jr.:
14:39

There is hope for everyone. Remember, you're not alone on this journey. With God's help, sound financial advice, and a commitment to making positive changes, you can overcome your financial challenges and experience true financial freedom. Trust me, you can do that. So until next time, my friends, as I always say, stay financially savvy and God bless you abundantly.