Financial Coaching or Bankruptcy?

(rock music) – Hey everybody, welcome back to the
Consumer Warrior Podcast. The podcast that’s dedicated to helping you with the big debt problems. If you’re just dabbling in debt this isn’t the podcast for you. We deal with the big debt
problems like repossession, debt collection lawsuits,
foreclosure, bankruptcy, and all those other horrible
financial problems out there. We’re here to help you to help yourself. Welcome back to the show,
I’m your host, John Skiba, and I am a consumer protection attorney in the State of Arizona. I’m also now a Certified Ramsey Solutions Master Financial Coach which is a certification that’s given by the Dave Ramsey Group to people who are certified to help people
with financial coaching following the kind of Dave
Ramsey approach to things. And on today’s episode
I’m going to talk about a subject that I get
questions about quite often here at my law practice and that is… The choice between bankruptcy and something like financial coaching where you’re trying to put together a plan to get out of debt. Whether it’s you’re going
to go with the legal route or whether it’s you go the budgeting and the debt snowball type route. So I’m going to talk about that today kind of the pros and cons of both so that you can decide what it is that’s going to be the
best option for you. But before I do that I
want to thank our sponsor for today’s episode which is
the Consumer Warrior Project. You know one of the biggest
hurdles that people have when they are dealing with debt problems particularly if they’re dealing with something through the courts,
you know with debt collectors, is that the playing field is not level. You’re usually dealing with an attorney who has dealt with these things hundreds, thousands of times before and you are new, typically,
to the court process, whether it be bankruptcy or
a debt collection lawsuit. And because of that because of the lack of knowledge
you have related to that you really find yourself in a tough spot. Well that’s where the Consumer
Warrior Project comes in. We have video tutorials, templates, forms, things that you need to help
bring yourself up to speed and deal with the debt problem. You can learn more about
that over at that’s the actual
website, Alright let’s talk about today’s subject which is deciding between
filing for bankruptcy or doing something like a
financial coaching type route. And if you’re not familiar
with financial coaching I will go into what that is and how it could be another option as far as dealing with your debt. So what I thought I would do
is start off by talking about bankruptcy and some of the pros and some of the cons related to it. Now some of the pros some of the good things
about a bankruptcy filing… And I should start out by saying that this is an individual choice anytime I’m dealing with
someone who comes into my office that’s looking to file for bankruptcy they’ll often ask me, “Should I do this?” And that’s not a question that
I ever answer for a client. I tell them they can do it I tell them if there’s
going to be any legal issues or if they qualify to file bankruptcy. But it’s a decision that
you have to make personally because there are lasting implications to a bankruptcy filing. I always say it’s not the worst thing
you’re going to go through but it’s not the easiest thing you’re going to go through either because there are some difficulties associated with a bankruptcy filing. But some of the pros to it are particularly with a chapter seven which is what most people
who file bankruptcy file a chapter seven is a
relatively quick process. In most instances it takes
between four and five months to get your case discharged. And that discharge order is
the order from your judge that says you’re no longer legally obligated to pay those debts. Four to five months may
sound like a long time but it’s smoking fast in federal court to get through anything that quickly. Not only that, I always say, think of how long it took to
accumulate all these debts. This is probably something
that was years or decades or a lifetime in the making and the fact that it can be
just pretty much wiped away in four to five months
is a pretty good deal, pretty efficient process. Some of the other pros are that you… In a chapter seven case you typically don’t have to
pay any of your debts back. Now there’s certain debts that’s don’t go away in bankruptcy. A lot of taxes don’t go away and typically student loans don’t go away in a chapter seven bankruptcy filing. But everything else
pretty much is discharged. But in a chapter seven
there’s no payment plan you don’t have to make
any monthly payments or settlements with your creditors. Basically you just file the case it goes through the legal process and eliminates those debts. One of the other big pros
for bankruptcy filings is is it stops the collection process. As soon as someone files
a chapter seven bankruptcy the court puts in place an order it’s called the automatic stay and what this order says
is everything stops. No phone calls, no
letters, no garnishments, no foreclosures, nothing, they can’t do any further
collections on those cases and that is a very powerful tool particularly if you’re facing something like a car repossession
or a foreclosure… You’re worried about losing your house it’s not going to happen
if you’re in a situation where you filed the bankruptcy because the court will
put that stay in place. Let’s talk about some of the cons as it relates to bankruptcy,
some of the downsides to it. There’s obviously an
impact on your credit. Frankly most people that come in to talk to me about bankruptcy the credit’s already just
in the, you know, cellar. They’re not doing good. But it will stay on your credit report for an additional 10 years. There’s a public records
section in the credit report and it’ll be there for 10 years
showing up as a bankruptcy. And it also could have a longer
impact on credit decisions. It will… You know, sometimes when
you fill out an application it’ll ask, have you ever
filed for bankruptcy? Not, have you filed in
the last five years, or eight years, or whatever it is. So it could impact lending
decisions even longer than that. It can be a difficult process. A lot of chapter sevens
are fairly straightforward and there’s no issues and you
kind of move on with life. There are other chapter seven
cases and chapter 13 cases where the court, they go through not only not only your debts and your assets but financial transactions
that have occurred over the last couple years in your life. So they look for things
called preferences. A preference is generally
when you pay back a debt to, say, like a family
member, or a friend, people they call insiders. They could look back and if you have paid back a family member in the recent past they can
actually go get that money from the family member and
distribute that to your creditors which makes Thanksgiving super awkward. They can… There’s things, fraudulent transfers, even if you transferred an
asset just very innocently if you transferred that
asset to another party or if you gave… A common one I see are
parents that have a car and their kid’s going off to college and they put the car in their kid’s name. That can be considered
a fraudulent transfer and they can actually go
back and get that car back from whoever you gave it to, sell it, and give the money to your creditors. So there can be a lot of issues that a lot of people aren’t aware of and a lot of little minefields, as far as, things that people, particularly
that don’t have counsel, that are going through
bankruptcy, can run into, that can make bankruptcy
somewhat unattractive. There is the… In a chapter seven there’s a chance that you’re going to lose assets. If your assets are not protected under either federal or state law the court can come in,
seize the asset, sell it, and give the money to your creditors. And then in the chapter 13 case which is more of a personal
restructuring of things that takes… That could be up to five years so it’s a fairly lengthy process. So those are some of the cons to it. So the bankruptcy, it has
its place, absolutely. I help people with it almost
every day of the work week but the people that it’s best suited for are people who are in some
sort of financial crisis whether it be a foreclosure, you know, if someone comes in to me, and says, “Hey, look, here’s the foreclosure sale, “the trustee sale, they’re going
to sell my home next week.” We’ve got to act quickly. There’s no time to do this reach out and try to get something squared away. Generally we are going to have to file a bankruptcy in that case get the foreclosure sale
stopped, and then set up a plan to be able to get things
caught up on the house. It could also be similar
with wage garnishment, with repossessions of a vehicle, those types of things can make it so that you’re in this crisis situation and something has to happen very quickly that’s not conditioned upon
the creditor agreeing to do it. ‘Cause you know often when we’re doing some type of negotiation it’s all contingent upon the creditor agreeing to take those steps and if they don’t want to,
like with a foreclosure, they’re typically not going to stop it just ’cause you ask them to you have to have something
that’s more stronger in place which is that automatic stay
from the bankruptcy court. So that’s when bankruptcy is best. Ideally you want to try to
avoid getting in that situation where it’s come to a crisis and so that’s where I think the financial coaching
side of things steps in. Something I do in my law practice is I offer both bankruptcy services and the financial coaching to help people who are
trying to make a transition in the way they deal with money. Let me talk about some of the financial coaching pros and cons. So when someone comes into my office and they want to work with me, me as their financial coach in helping them to get out of debt. Some of the downsides to it
is, one, it takes much longer. So a chapter seven case, like I said, takes about four to five
months, fairly quick. The coaching process is going to be longer because you’re going to be paying back most if not all of your
debts through this process. So it could be a year,
it could be two years, it could be three years. We put together a plan on
how you’re going to do this and we do this through
the Dave Ramsey Method with the baby steps, the debt snowball, the whole thing if
you’re familiar with that but I help you to work
through some of these issues and also trying to
settle some of the claims so you’re not paying
full price on everything. But we work through this and
it can take a much longer time than your typical chapter seven. There’s also the issue, as I mentioned, that you’re going to be paying
back most of your debts. I mean that’s one of the big
pros of a chapter seven, is, you’re not paying anything,
these things are discharged, they’re legally discharged so that you don’t have
to pay them anymore. Where, through financial coaching, what we’re doing is we’re putting together a plan and a proposal as far as how you’re going to pay these debts off to be able to get out of
debt relatively quickly. One of the other cons of it
or the difficulties of it is that you don’t have
the protection that you do from creditors in a bankruptcy. So there is no automatic stay unless you’re in the bankruptcy court and so your creditors can actually still continue to call
you, they could sue you, they could garnish your wages. Hopefully that doesn’t happen and what we do with financial coaching is talk to you, how to
communicate with your creditors, so that those type of things don’t happen but you don’t have that guarantee so those are some of the
kind of the downsides to that financial coaching process. Some of the benefits or the
pros to it really is, to me, to me, one of the big
benefits of financial coaching is that it’s not just
about eliminating debt. Bankruptcy, that’s what it’s about, it’s about eliminating debt,
stopping those creditors, and just being done with it. The pros to financial coaching is we really go in and we
reconstruct your financial life. We just change your perspective
on how you deal with money and how you interact with
money, how you save money, how you budget, how you invest, how you get ready for retirement, how you pay off your debts, how you avoid debt in the future. And, to me, that’s where the real power is in financial coaching, is that it totally can
change your perspective when it comes to money, and
debt, and getting out of debt. And by going through that
process of paying off debt and going through the
whole debt snowball thing and learning how to budget, it ensures… I shouldn’t use ensure I guess but it makes it much more likely that you’re going to avoid
financial problems down the road and it will make it so that you are, I think, just smarter
with money in general when it comes to saving,
saving for retirement, for your kids’ college,
and really building wealth as you get yourself out of debt and start really taking
control of your money. So, to me, that one of
the biggest benefits of it because in our financial coaching sessions we really teach about
the importance of saving we teach you strategies and
techniques for budgeting to make sure that you have a solid written budget every month and then a plan to eliminate the debt. And once you go through that process ’cause it’s not easy, and that’s… I guess that’s what the hard
sell is to financial coaching is what I’m offering there is not simple. As Dave always says, “It’s
easy but it’s not simple.” Or the other way around. But it’s one of those things where the concept is not difficult to understand but the implementation of it, it’s work, you’ve got to work at it but I think that the overall result is you’re not going to be back in
my office with debt problems or looking to file for
bankruptcy in the near future, which, unfortunately, some people end up filing multiple times and that causes some problems because their interaction
with money is not changing and so the debt problems still continue even after something like
a bankruptcy is filed. So those are kind of the pros and cons between these two
things, between coaching, between bankruptcy. And that’s a decision that
you are going to have to make or you and your spouse
are going to have to make as far as how you want to
deal with the debt problem. You know like Dave Ramsey says, “You’ve made a mess, how
are we going to fix it?” There’s different ways and
different approaches to doing it but a lot of it depends on you and the way that what you’re willing to do and what your approach to it is. Like I said there’s some times when bankruptcy is absolutely necessary. I have filed thousands
of them in my career. And definitely there are
times when it’s necessary but there’s also times when it’s not and I think that there’s a lot of benefit that people can receive through going through the coaching process and learning the skills
and things that, frankly, we don’t learn as we’re growing up. My wife and I, I look at our situation, and we’re looking at it, “What
are we teaching our kids?” As someone who does this
all day long professionally what am I teaching my kids
as far as how to handle money and how to deal with debt, and how to avoid debt going forward? These are big issues
and they’re big issues that can change your life,
they can change your kid’s life as you are go through that. So… So that is really my breakdown of the financial coaching pros and cons bankruptcy pros and cons, and, just, ways to deal with debt. I mean debt is such a huge problem. I saw some statistics recently CareerBuilder did in 2017 a study said 78% of Americans live
paycheck to paycheck. So eight out of 10 people
that you see driving around are living paycheck to paycheck. And how stressful that is. The one small thing happens
and you’re in crisis mode and that’s a tough, tough place to be. And let me give you some other numbers that I thought were really interesting. The average consumer debt
in the U.S. right now, $16,000 in credit cards,
$29,000 in car loans, and $50,000 in student loan debt. The student loan debt I can tell you from, not
only everything I read, but my daily practice, here in Arizona, is a cancer, that is… The problems and the heartache that excessive student loan debt are causing, and will cause, I think we’re just seeing
the beginning of this, is really out of control. So whether it’s bankruptcy,
whether it’s financial coaching I mean these are things I help people with I’d be happy to help you with it. I do financial coaching one big benefit to that
is I do it nationwide I don’t have to just be
restricted to Arizona because it’s not legal
practice, it’s not law practice. So if you’re interested, if you want some financial coaching, you can contact me, same
place here at, you can find my contact information there. I would be happy to
talk to you about that. But if you’re thinking about bankruptcy I think it’s good to talk
to a bankruptcy attorney and get a couple opinions as far as what they think is the best
thing for your situation. So, that’s going to do it for this episode of the Consumer Warrior Podcast. Went a little bit longer than usual today. Again, if you want to learn more about the Consumer Warrior Project or if you want to learn more about coaching, financial
coaching opportunities, with me here in my office,
again, I do that nationwide, head on over to you’ll find my contact information there and you’ll also find all of the
online courses and tutorials that we have to help
people who are dealing with debt problems. So that’ll do it for this episode and we will catch you next time. (rock music)

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