In our initial meeting, my clients almost always begin the conversation with an explanation of the events leading to their financial difficulties. and the various methods they have employed to try to repay their debts. One very common question is “bankruptcy vs debt consolidation.” Should they work with a debt consolidation or credit restoration company first?
Based on stories told to me by past clients, I am leery of these kind of companies for several reasons:
1. Debt consolidation services are not cheap. Many of these companies will charge you hundreds to thousands of dollars for their services.
2. You can do it yourself for free. The services that you pay for are something you can fairly easily do by yourself by simply contacting your credit card companies and negotiating the amount that you owe. None of this is rocket science. If you have enough money to pay a lump sum of roughly 40% to 60% of the amount that you owe to a single creditor, they are often willing to settle the debt for that amount. If you don’t have the amount for a lump sum payment, they are generally only willing to accept a reduction of up to 20%.
3. Any creditor can opt out. If you have several credit card debts you might find that all but one or two are willing to accept the debt consolidation company’s proposal. Unfortunately, any one creditor can upset the apple cart by refusing the offered payment, and taking a judgment instead. In bankruptcy you either make no payments, or all creditors must participate in the payment plan.
4. They can’t stop a lawsuit, repossession or foreclosure. While this is something that seems to be promised by many of these companies, there is only one method with which to stop collection actions, and that is bankruptcy. When you file bankruptcy federal law requires that all collection actions stop immediately through something called the automatic stay, the violation of which could result in fines and costs assessed against the creditor that violates the stay.
5. You waste valuable time and money. Clients who have attempted to use debt consolidation or credit restoration companies have spent months, if not years, paying barely enough to keep their creditors from suing them. Once you are served with a lawsuit, you lose many of the bankruptcy planning options that can assist you in life after bankruptcy. These options only make sense in the context of planning for bankruptcy, and are best explained by contacting a bankruptcy attorney at the first sign of financial trouble.
Contact us at (810) 235-9000 to meet with us for a free initial consultation, so you can discuss every option to prepare you for life before and after bankruptcy.