Bankruptcy Versus Debt Consolidation - A Clear Choice

A recent article in The New York Times exposed serious pitfalls in front of consumers, lured by the debt consolidation companies that advertise aggressively. The pitch is simple: "Do not file bankruptcy instead of paying the debt negotiation company, which is a lower payment or lump sum settlements .." The problem is that it has never been easier. The industry is raking debt settlement money. The New York Times noted that the industry is "so that a profitable tradeAssociation, the U.S. bankruptcy alternatives for organizations recently convened [in Palm Springs, Florida] to ensure the maritime borders of the Four Seasons Resort, offers and to plot strategy. "But after the consolidation company debt is money the average consumer, the consumer is rarely in a better position, and often file for bankruptcy anyway.

These companies go by many names, including debt consolidation, debt negotiation and debtRemoval companies. The most common tactic of these companies debt consolidation is to educate the consumer so that their accounts are in default. Instead of paying the creditors of the consumer is asked to pay money to the debt settlement company. The company will pay a debt negotiation percentage of the money - often 15% to 20%. Then the debt settlement companies contacted by the creditors and tried to negotiate a lower payment or agreement which is for a smallpercentage of the full debt.

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In the past, it may have been possible to construct such a house of cards. But creditors have become savvy, and more aggressive. If the creditor waits until the debt negotiator has settled with the other creditors, then there may be a larger pot of available funds, and the debt settlement company may have to agree to a higher amount to get the last settling creditor into the house of cards. Or, the creditor may not settle at all, causing the house of cards to collapse entirely. By this time, the consumer is in default on all of their bills, has paid exorbitant fees to the debt elimination company, and is still deep in debt. They are looking at filing for bankruptcy after all.

Bankruptcy Versus Debt Consolidation - A Clear Choice

By contrast, bankruptcy can be a line drawn in the sand. The consumer pays a fee for a qualified bankruptcy attorney to file their bankruptcy petition and schedules. By law, all of the creditors must immediately stop all collection efforts, including calls, letters, and lawsuits. Foreclosures are halted. Garnishments stop. The bankruptcy court judge decides which of the debts are dischargeable, and what money and property the debtor is entitled to keep. After the judge issues a discharge order, the discharged debts are gone forever.

Although the bankruptcy is a significant impact on a consumer's credit report, all of the impact is felt at one time. The bankruptcy judgment will be off of the consumer's credit report within ten years. After about two years of paying bills on time, a consumer will typically qualify for credit on regular terms. By contrast, using the debt consolidators and debt settlement companies may result in lawsuits and collections for years down the road.

As the New York Times reports, there really is no question about the value of the services of these companies. It is a bad deal for consumers. Bankruptcy is a serious decision with long lasting consequences. But it marks a definite line in the sand from which a consumer can discharge most or all of their debts, start over from scratch, and get a fresh start.

Bankruptcy Versus Debt Consolidation - A Clear Choice