TV ads abound for Debt Settlement Companies, but they may cost you far more than their promises. These companies promise fast, inexpensive solutions. You should at least be wary of them. As a bankruptcy attorney, I’ve seen plenty of people and friends who’ve tried these companies, and then come to me in a panic when they get sued!
The Problems
Debt settlement companies set up a monthly payment plan for you to pay them money. Some of that, of course, goes towards their fees. They want the monthly payments to go towards their fees first, but sometimes they aren’t clear about the timing or amount of these fees.
Next, they want your debts to get very seriously behind. Creditors are more likely to accept a settlement if you’re farther behind because they think they are less likely to get paid at all. That part makes sense. However, in the meantime your credit score is sinking lower and debt collectors get more and more aggressive> Finally a lawsuit could lead to your wages or bank account being seized.
Debt Settlement companies try to build up enough in your account to try to settle on one of your debts first. However, as your can imagine, the creditor who may end up second, third, or beyond that in line is not happy at all.
This is when I hear about the problem most often. People will come to me showing me a lawsuit that was filed against them and are often quite surprised. They thought the Debt Settlement Company was “taking care of this.” But, the Debt Settlement company cannot legally force any of your creditors to stop pursuing you.
How bankruptcy differs from debt settlement
First, with a debt settlement company, you don’t know what the outcome will be. With bankruptcy, you know the exact debt relief you can get and the outcome you will achieve. If you have only unsecured debt such as credit cards, medical bills, etc., then all of that can be 100% wiped out in Chapter 7 bankruptcy.
Second, bankruptcy is a law. It doesn’t matter what the bill collectors want or are willing to accept, the law specifies the result they will get. As soon as you file, debt collectors must stop contacting you. Also, lawsuits will be stopped dead in their tracks. They are being brought under state law and bankruptcy is Federal law so it controls.
Finally, the impact is immediate, and there’s no uncertainty while you wait for promised results that may or may not happen with debt settlement.
The Costs
Debt settlement options can be extremely costly. Most of these companies charge at least 20% of your total debts for their fee, and that’s even before anything goes to pay your creditors off. Even then, despite their promises, they don’t know how much it would cost to settle with any one particular creditor, and neither will you.
Bankruptcy costs are a flat fee that’s affordable. I try to make every effort to make it so, and you can usually make payments towards that flat fee.
Please feel free to contact me, Peter Blinn, to discuss your options.
For over 35 years, listening to clients and putting them at ease, while finding solutions and helping achieve future goals, in Marion County, Lake County. Citrus County, Sumter County, and The Villages.
