Debt “Relief” Alternatives
When people are having financial difficulties, they often file for bankruptcy with our law office. When they come in for the first consultation we hear many stories of how they were taken advantage of as they tried to solve their problems before they consulted us. The following is a list of some of these efforts and what to watch out for if you are considering them.
Debt Reduction Schemes
These systems should theoretically work, for they are based on principles of good negotiating. In the real world, they seldom do. With a debt reduction program, you are asked to pay a certain amount of money each month, which is held for you in a supposedly safe account, while at the same time you stop paying your creditors. The theory is that eventually your creditors will agree to take less than the full amount in settlement of the debt, and they will get paid out of the money you have been putting away with the debt reduction company. The problems are that some creditors will not go along with these schemes; the fees can be very high; and if you find you cannot afford the payments, you may be told that the money you have paid in is being retained for their fees.
Debt Management Plans
Wherein you pay an amount to the company that is helping you and they spread it out among your creditors. The hope is that your creditors will take something less each month than you have been paying and reduce the interest rate, and these companies can often get this done for you. Obviously there is a fee to the company helping you. The problems are that you will end up paying all or most of your debts anyway; the payment may be too high for you to afford; and you could probably accomplish the same thing by yourself. Most credit card companies will work with you if you call them and tell them you are in financial trouble. What they often do is close the account and set up a monthly payment arrangement, which if it is based on a lowered interest rate, can be lower than you were paying. Of course, you are still paying off the entire debt and may not be able to afford the new payments either, especially if you are unemployed. This may be a solution for someone who fell behind because of the loss of a job or a health problem, but is now working and earning something close to the former income. If you are on unemployment , this will seldom work.
People often take loans from their pension plans, their 401(k) plans and from other deferred compensation plans. With these loans, the repayments come right out of your pay checks and could easily reduce your take home pay to the point where you cannot pay your bills. People often take out a pension loan, find they get in debt some more, take out more of a pension loan, and their take-home pay is less and less. One nice thing about bankruptcy is that if you do file, you can keep all of your pension benefits. Taking loans to pay your debts and then having to file anyway means that you could have filed earlier without taking on the loans.
This is a waste of money. If there are mistakes on your credit report, you can fix them yourself by writing letters to the bank reporting incorrect information and to the credit reporting agency that includes the mistake in your credit report. You do not need to pay someone to do this. For those who are told that they will have a clean credit report or have things taken off of their credit reports, be warned: there is a way to clear everything off of your credit report, but it only lasts for a month or two , then it all comes back onto your report with an extra notation that lets people know that you tried this scheme.
As with anything in this area, do your research first. Search the internet for information on anything you might be thinking of doing. Google the names of any companies that are promising to help you. You will find web sites with comments on all of them and you can see what other people have experienced. And always remember, if it sounds too good to be true, it is too good to be true.
Bankruptcy might be probably the best options for a lot of people who have financial problems. Even though your credit report would indicate that your filing for bankruptcy, it rarely affect a person’s ability to get a new job or a new apartment, and your credit could be quickly reestablished.