Many attorneys’ view “Debt Settlement” and “Debt Consolidation” programs to be scams. In fact, most experienced bankruptcy attorney’s have clients who previously signed up with one of these programs but end up in worse shape than they were in before. Many companies who provide these services end up under investigation and usually have a Better Business Bureau rating of “F”.
What do these companies promise?
A debt consolidation company loans individuals money to pay off some or all of their debt. In turn you pay the debt consolidation company the interest due to the original creditor company. Often, these companies quote extremely low-interest rates to lure the customer in and then quickly hike the interest rates up far beyond what they originally were. Similarly, these companies often charge high fees every time you interact with them. For these reasons you will likely never find a friend or family member who would recommend one of these types of companies.
What can you do to protect yourself?
One option is to communicate directly with the credit card company you need help paying off to negotiate a settlement or payment program. However, often the creditors are not willing to do this, especially in cases where the debtor has a low credit score or cannot demonstrate the ability to pay off the debt. Another option is Chapter 7 or Chapter 13 bankruptcy. In Chapter 13, you pay a certain portion of your debts back, and the rest is forgiven after your case is finished. There is also no interest that will be added to your unsecured debts during a Chapter 13 payment plan. Under these payment plans, your attorney will consider what your disposable income is and this amount will be the amount you will pay back your creditors. So a simple way of putting this is that we look at your disposable income (what you have left at the end of the month) and pay this amount back over a 36-month payment plan. All payments go directly to the Chapter 13 Trustee and the courts handle everything.
Unlike debt consolidation programs, Chapter 13 is very flexible. If something changes in your life during a Chapter 13 plan, you can ask the Judge to lower your original repayment plan payments. Usually, these circumstances include a job change, family problems, car repair or other unexpected income loss or increased expense.
I would be happy to consult with you before you sign up for a debt consolidation, repayment or credit repair program so that you can at least obtain some basic information on Chapter 7 and Chapter 13 bankruptcy options. Call my office today for a free, in-depth consultation to explore your options for a fresh start!