Why Debt Settlement Companies May Not Be the Answer

If you’ve been considering filing bankruptcy in New York City, chances are you’ve looked into other means to get out from under debt. One way to take care of debt that many people look into is working with a debt settlement company. But the problem with many of these companies is that they don’t have very transparent services. It’s hard for consumers to know exactly what is going on with their debt and money if they don’t have total transparency about the process. This is just one way that filing for bankruptcy and using debt settlement companies is different. Here are some other reasons to consider avoiding debt settlement companies if you can:

Debt Settlement Companies May Mislead Customers

When you file bankruptcy, the law requires that all debtors work with the settlement determined by the courts. However, debt settlement companies don’t have the force of law behind them. Some debtors refuse to work with the settlement because they don’t have to. They’d rather continue to try to recoup the full debt from you, or allow more interest to accumulate.

But debt settlement companies don’t tell consumers this fact. They’ll report to customers that all their debts can be settled, and may not even divulge the fact that some creditors aren’t working with them. This means that consumers can come out the other side of settling debts with more debts that they assume are all paid off.

Debt Settlement Companies Steal Money from Customers

The way a debt settlement company works is by evaluating your debt, determining how much may be needed to settle that debt, and then dividing that amount into small payments that they begin charging you right away. You pay into what you believe is a fund that the debt settlement company is using to contact debtors and arrange for settlements. But the fact is that, because not all debtors will work with debt settlement companies, some of the money that consumers are paying into this fund is going nowhere – except to line the pocket of the company.

These companies don’t usually inform customers of what exactly their money is going, so consumers have no idea that they may be owed a refund.

Bankruptcy is Different

When you file for bankruptcy, your debts will be consolidated by a bankruptcy trustee. Depending on the type of bankruptcy you file, your assets will be sold off to pay back the settlement, or you’ll pay payments to the trustee for a period of three to five years to cover the settlement. The key differences are:

  • Debtors are legally required to work with settlements that are awarded to bankruptcy filings. This means that you don’t need to worry about debts being left over, other than legally exempt debts like student loans.
  • Because bankruptcy is a legal proceeding, transparency is required. You will always know where your money is going, and because the settlement is determined before you begin making payments or selling assets, you’ll only pay what is necessary to cover the debts. You’ll never be paying towards estimates or guesses about what debts could be settled for.

Call Us for a NYC Bankruptcy Consultation

If you are considering bankruptcy, it’s a good idea to start with a consultation from an experienced bankruptcy lawyer. In NYC, we can help you find out if bankruptcy can be right for you, and help you protect your assets in a bankruptcy. And bankruptcy lawyer fees are paid up to a year after the ruling, so you don’t have to worry about affording great representation. Call us at 212-244-2882 to set up your free consultation.