If debt is substantial or a person has many different creditors, a person may consider negotiating with creditors him/herself to improve the financial situation without filing bankruptcy. When negotiating directly with creditors, the person has to be careful of what the individual says, and try not to give away too much personal information to allow the creditors to investigate assets. A person should aim for a 1/3 discount in negotiations with each creditor. Most creditors generally give at least 20% off. Some go as far as 50%, while some take whatever they can get.
For someone not sophisticated in dealing with creditors, the person may think to engage a debt counselor or debt consolidation company. When debt piles up, and a person is getting sued for collection, a debt counselor or consolidation company may slow down the collection process by getting the creditors to agree to a payment plan. Each month the debtor pays the consolidation agency for the agency to divide the pot of money to each of the creditors.
However, debt counselors or consolidation companies are unable to halt all the creditors from collecting. Some creditors may not want to join in the consolidation. The use of a debt counselor or consolidation company may just prolong financial problems because these services usually charge fees, which adds to an individual’s debts.
Before going to a debt consolidation company, be aware that the U.S. Trustee and the Justice Department concluded many non-profit debt consolidation companies engaged in questionable tactics in the past. Often debtors who engaged a debt consolidation company continue to be sued by creditors who refused to participate in the debt consolidation. These individuals, without money to hire a lawyer, end up having to represent themselves in court, taking days off work, or otherwise getting their personal lives disrupted.
A debt consolidation company may not do much to assist an individual in collection lawsuits because the company may not have attorneys licensed to practice laws in a venue where the suit is filed. The lawyers working for a consolidation company may give the debtor template answers to respond to the complaints, but any further legal assistance may get the lawyers in trouble for unauthorized practice of law.
Unlike working with a bankruptcy attorney, debt counselors do not have incentive to work hard when they charge a fee for their services based on an individual’s debt not based on how much they can negotiate down the debt. The fees debt counselors charge are not reviewed by the courts, unlike the legal fees for bankruptcy attorneys which a court must approve to be considered earned. When a bankruptcy attorney collects fees up front, and does not do his/her job, like not show up for a 341 hearing with a client, the attorney may need to disgorge the fees. The attorney may be requested to attend an order to show cause to explain why the attorney should not return fees to the client so the client can find another attorney.
Look to an experienced New York bankruptcy attorney to resolve financial problems with bankruptcy options.