June 24, 2019

Beware Debt Consolidation and Repayment Proposals

Develop a plan for dealing with your debts by coming to an agreement with your creditors or filing for bankruptcy protectionIn my bankruptcy practice I have dealings with many people who, in response to financial difficulties, have sought help from companies that purport to help settle, consolidate or otherwise manage the debt. By and large, most of these people have learned of these companies from advertising.

While there are few legitimate firms that provide these services, most simply draft the debtor’s funds from their bank account for payment to creditors and payment of their fees. That’s right, they do not perform their services for free.

What services do debt consolidation companies provide?

There are no value-added services provided by these companies, and many of them are actually owned and operated by credit card companies.

Why do I end up meeting with these debtors in my bankruptcy practice if they are dealing with debt consolidation companies?  The answer is that debt settlement plans hardly ever work and the debtors eventually in up in bankruptcy.

Should a debtor choose to attempt debt settlements with creditors, my advice to the debtors is that they negotiate repayment plans directly with their creditors.  This has two major advantages.

  1. It avoids being misled as to what a debt settlement company can actually accomplish
  2. It gives the debtors some certainty early on as to whether debt settlement is attainable

When you need an emotional buffer

If you feel you need an emotional buffer between yourself and your creditors, consult an agency that is non-profit, in good standing with the Better Business Bureau, and a member of the National Foundation for Credit Counseling. I suggest Consumer Credit Counseling Services which meets each of these criteria.

People want to do the “right thing” by paying their debts to the best of their abilities, but creditors have no incentive to tell them that making partial payments can have a worse effect on a credit score than a bankruptcy.

Since you have read this post this far, you are apparently in financial difficulty and need to know all of your options. I suggest that you download my free guide to Life After Bankruptcy. It includes facts about rebuilding your credit after bankruptcy and dispels the many myths and “common knowledge” about filing for bankruptcy protection and its aftermath. Simply click this button to download the Guide. No registration required