Alabama Bankruptcy Blog

I have seen and heard lots of advertising by companies saying they can settle my debts for very little and help me avoid filing bankruptcy. Does this work?

Unfortunately, debt settlement falls under the “if it sounds too good to be true, it is” category.  While I am sure there may be a few success stories from people using these companies, I have yet to personally hear of one.  Instead I have heard many complaints from clients who have wasted thousands of dollars on these “settlement” plans before having to turn to bankruptcy because of lawsuits and garnishments.  The Wall Street Journal has a good article on this subject – Debt-Relief Firms Attract Complaints.

 

The problem is most people cannot afford to pay enough monthly to settle each credit card debt before at least one of the credit card companies file suit, obtains a judgment, and attempts garnishment.  Also, if you can afford to save enough to do this, you could settle your credit card debt on your own without paying the high fees these debt settlement companies charge.

 

Speaking of the fees, remember that even though these companies may call themselves “non-profit” and a few may technically qualify under the tax laws (this is apparently being questioned by the IRS), it does not mean they are a charity.  These companies are clearly making lots of money.  Why else would they be multiplying like rabbits and how else could they be buying all of that advertising?

 

Many people think they are saving their credit by using these debt settlement companies.  If your credit score has not already been significantly lowered before you use one of these companies, it will be by time you finish (which I have yet to see) or drop out.  Settling for less than the amount owed is a negative on your credit report in itself.  Add to that charge offs and judgments from the card companies that are not settled early and your credit score will show tremendous damage.  A bankruptcy’s effect on your credit would be very similar and allow a quicker recovery.

 

A bankruptcy may or may not be the answer for you, but do not buy the hype of these debt settlement companies and fall for their anti-bankruptcy propaganda.  Do your research on these companies by checking with the Better Business Bureau and educate yourself about bankruptcy by getting your free (for Alabama residents) copy of my The Alabama Bankruptcy Book.

 

Richard L. Collins - Attorney at Law practicing extensively in Bankruptcy Law in Alabama - 422 Third Ave SE, Cullman Alabama

Do I need to file bankruptcy?

Filing for bankruptcy is a heart wrenching decision.  On the one hand you want to do what you promised your creditors you would do, but on the other hand you have to house, feed, and clothe your family and yourself.  There is no question that bankruptcy should be the last resort, but as to whether you should file or not, my classic lawyer answer is “It depends.”

First, we need to look at why you are considering filing bankruptcy.  The most common reasons are the following:

• Are you behind on payments on your house and/or car and being threatened with foreclosure and/or repossession?
• Are you using credit cards frequently to supplement your income with cash advances or purchases of necessities such as groceries and payments of utility bills?
• Has your house been foreclosed on or have you had a vehicle repossessed?
• Do you have more than one credit card maxed out or nearly maxed out?
• Do you have more than $10,000 of debt with credit card companies and/or finance companies?
• Have you frequently been using payday loans and/or check cashing lenders to make it through the next week or two?
• Have you been sued by a creditor and/or are you currently or soon to be garnished?
• Are you getting numerous calls and letters daily from creditors or collection agencies?
• Are you borrowing from one lender to make the payment to another lender, i.e., are your robbing Peter to pay Paul?
• Have you had your license suspended for causing an auto accident where you were not insured?
• Do you have large outstanding medical bills that insurance did not pay and you cannot negotiate a payment you can afford?

If your answer to any of these questions is “Yes”, then it may be a good time to see a bankruptcy attorney.  This does not necessarily mean you should file bankruptcy, but it does mean you may need some legal advice.  The attorney may suggest some of the following alternatives to bankruptcy:

• Tightening your budget.
• Downsizing homes and vehicles.
• Looking at consolidation loans (and then destroying all credit cards)
• Getting a second part-time job for more income
• Having a stay at home spouse or of age child obtain employment.
• Temporarily getting financial assistance from family or friends.
• Negotiating with creditors.
• Doing nothing.

If any of these alternatives allow the possibility of a LONG TERM solution, then they should be greatly considered even though it may call for tough decisions and hard work.  Why?  Although bankruptcy can be a “quick fix”, it comes with some serious long term consequences to your financial future.

The bottom line is I and many other bankruptcy attorneys offer free initial consultations, so it will not cost you anything to see what your options are.  If after talking to an attorney, you think you can dig yourself out of the hole you are in without bankruptcy then definitely try that.  But, if it does not work out you will be prepared and should have a plan.

If you have further questions regarding this or other bankruptcy, debt, or budgeting questions please email me.