What Are My Options Besides Bankruptcy in North Carolina?

From the team at Huggins Law Firm, P.C., we want to start with our most important promise:

Our job is not to push you into bankruptcy.

Our job is to listen to your story, look at your whole financial picture, and give you the best, most honest advice for your family.

We have been helping families in Greensboro, High Point, and all over the Triad for decades. We know that bankruptcy is a powerful legal tool. But it is not the only tool.

You are probably seeing the ads. You’re hearing them on the radio.

“Settle your debt for pennies on the dollar!”

“One easy monthly payment! Get a consolidation loan today!”

These programs sound great. But they are often full of hidden risks, hidden fees, and legal traps that they do not tell you about.

This page is your simple, honest guide to the “alternatives.” We are going to show you what they really are, and why bankruptcy is often the safer, more powerful, and cheaper option.

Key Takeaways: The Truth About “Debt Relief”

We know you’re looking for an “easy” button. If you only read this, read this:

• “Debt Negotiation” is Not a Legal Process: A creditor can refuse to negotiate and sue you anyway.
• The “Tax Bomb” is the #1 Hidden Risk: If a “debt settlement” company does get a creditor to “forgive” $10,000 of your debt, the IRS can treat that $10,000 as taxable income. You just swapped a credit card bill for an IRS tax bill.
• “Debt Consolidation” is Just Moving Debt: It is not “debt relief.” You are just getting one big new loan to pay off 10 small ones. You still owe 100% of the money.
• Bankruptcy is a Legal Solution: A Chapter 7 or Chapter 13 is protected by a federal judge. It legally forces creditors to stop. And a bankruptcy discharge is 100% tax-free.

Alternative 1: Debt Negotiation / Settlement

This is the one you hear about the most. A “debt settlement” company tells you to stop paying your credit cards and to pay them a monthly fee instead.

They put your money in a “savings” account. When it gets big enough, they call your creditors and try to “negotiate” a “lump-sum” settlement.

It sounds great. But here are the huge risks they don’t tell you about.

The “Lawsuit” Risk: It’s 100% Voluntary

This is not a legal process. This is just “haggling.”

A creditor has zero legal obligation to talk to them.

• What happens while you are “saving up” money? Your credit is being destroyed by missed payments.
• What happens if one of your creditors (like Discover Card) has a “no negotiation” policy?
• They will ignore the debt settlement company, sue you, get a judgment, and garnish your wages.
• The debt settlement company cannot stop them. Only the Automatic Stay from a bankruptcy filing can do that.

The “Tax Bomb” Risk: The 1099-C

This is the biggest, most dangerous secret.

Let’s say the company is successful.

• You owe $20,000 to a credit card.
• The company negotiates, and the creditor agrees to “settle” for $10,000.
• You “saved” $10,000! Great, right?
• Wrong.
• In January, that creditor will send you (and the IRS) a 1099-C “Cancellation of Debt” form.
• The IRS treats that $10,000 of “forgiven” debt as taxable income.
• You just swapped your $10,000 credit card bill for a **$3,000 IRS tax bill.**
• And as we know, IRS debt is much harder to get rid of than credit card debt.
• (A “discharge” in bankruptcy is 100% tax-free.)

The “Fee” Risk

These companies often charge huge fees (up to 25% of the debt) for this “service.” When you add up the fees and the new tax bill, you often end up paying more than you would have in a Chapter 13… with none of the legal protection.

Alternative 2: Debt Consolidation Loans

This is the one that seems the smartest.

You have 10 credit cards, all at 25% interest. You go to a bank and get one big new loan for $30,000 at 12% interest. You pay off all 10 cards.

Now you just have one affordable, lower-interest payment.

This can be a good idea, but only if you have an interest rate problem.

It is a terrible idea if you have an income problem.

• You Still Owe 100% of the Money: You did not get “debt relief.” You just “moved” your debt. You still owe $30,0T0.
• What if you lose your job? What if you have a medical emergency?
• You will just default on the new loan. And now, you are right back where you started, but you have no other options.
• The “Secured” Trap: Be very careful. Many “consolidation” loans try to get you to “secure” the loan with your car or your house (a Home Equity Loan).
• This is a horrible idea. You just turned your “unsecured” credit card debt (which we can wipe out in bankruptcy) into a “secured” debt. If you default, they can now foreclose on your house or repossess your car.

Alternative 3: Credit Counseling (Debt Management Plan – DMP)

This is a non-profit option. A credit counselor will look at your budget and help you create a “Debt Management Plan” (DMP).

They will negotiate with your creditors to lower your interest rates.

You will then make one monthly payment to the counseling agency, and they will pay your creditors for 3-5 years.

This is a good option for people who can afford their payments, but are just getting “killed” by interest.

But it has two big risks:

1. It is 100% Voluntary: Just like “debt settlement,” a creditor can refuse to join the plan. Or they can drop out half-way through and sue you.
2. You Pay 100% of the Debt: This plan does not “settle” the debt. You are agreeing to pay all of it back, just at a lower interest rate. For many of our clients who are out of work or buried in medical bills, this is still not affordable.

Why Bankruptcy is Often the Safer, More Powerful Tool

As your lawyers, we are not a “debt settlement” company. We are a law firm. We offer you legal protection.

Let’s compare these “alternatives” to a real bankruptcy filing.

When you look at the facts, the “scary” option (bankruptcy) is often the safest, cheapest, and most powerful option.

It is the only tool that gives you a true, legal, and final “Fresh Start.

“Our job is to look at your whole picture—your Divorce case, your Personal Injury case, your whole life—and tell you the honest truth.