Bankruptcy vs credit counseling

Tell us about your situation and we’ll provide a Free no-obligation debt assessment.
100% Safe. We Promise, No Spam! Privacy Policy

Debt Management and Payments

The airwaves are filled with ads touting debt settlement or debt negotiation, implying that is a better solution than bankruptcy. A credit counseling plan, also called debt consolidation, or debt management plan, typically work by a nonprofit agency (which is often funded by the credit card companies) getting your credit cards to agree to waive or substantially reduce the interest, and get you into an affordable payment plan with them. They will sit down with you and take a look at your budget, and if it can be worked out, particularly if you are of above means income and do not have a substantial amount of debt, that is sometimes not a bad way to go. I get a lot of referrals from these so-called credit counselors, when they realize that you cannot afford the payments.

Credit Counseling

I would recommend that you stay away from the for-profit credit counseling agencies. They are usually heavily front loaded with fees, (and ironically, often charge you more than double what a bankruptcy attorney will cost, even though they don’t have the same training nor are they held to the same standards as attorneys) and the first year or so of your payments are just going to them. Oftentimes, even though the creditors may have signed up originally, the creditors will drop out of those. I have had many, many clients who have come to me after spending a year or two with one of these outfits, only to have creditors drop out and end up suing them and garnishing their wages. People in that situation probably could’ve been helped out by me years before.

Debt Negotiation & Debt Settlement

Worse yet are these so-called debt negotiation or debt settlement outfits. At first blush, they seem like a great idea — they save up your money, and then try to get the creditors to settle for a small portion of the balance owed. The problem is, the credit card companies quickly sniff out what is going on, and often react by promptly suing you. If it was that easy, you could do it on your own without hiring anybody. Also, if it was easy, I’d do that for my clients rather than filing their bankruptcy.

Who’s Working in Your Best Interests?

Keep in mind that these agencies are for-profit businesses, they are looking out for themselves, and they are not run by attorneys who are ethically bound to look out for you. Even if you can successfully settle your credit card for pennies on the dollar, the credit cards will often “1099” you, which means they will send you and the IRS a legal document, indicating that the debt that they charged off is taxable income to you. (The people that I talk to who have been through these debt settlement places were never told that). The fact is, debt settlement or credit counseling often fails, and is usually not going to put you in any better of a position with respect to your credit score than a bankruptcy would anyway.

Check out Tim’s recent articles for helpful insights related to Credit Counseling and how those may impact you.

Also, here are some helpful articles related to Debt Management.

Related & Useful Links:

Disclaimer

Please be advised this Web site has been prepared for general information purposes only. The information on this Web site is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. Also, the law may vary from state to state, so that some information in this Web site may not be correct for your jurisdiction. Finally, the information contained in this Web site is not guaranteed to be up to date. Links to third-party web sites are provided for convenience and for general information purposes only. We do not have control over the content or privacy settings of sites linked to this site. Please refer to the owners privacy policies for more information on their specific policies. E-mails or online submissions to Timothy Casey Theisen, P.A. do not constitute a client-attorney relationship. Your information is nevertheless considered confidential and will not be shared with third parties. Timothy Casey Theisen, P.A. is not responsible for information provided by linked sites.