Credit consolidation agencies may be an alternative to bankruptcy when debts are not substantial or there are not many different creditors. A credit consolidation company usually charges fees based on the total amount of debt. Some fees can be as much as $1000/month. According to the U.S. Trustee and U.S. Department of Justice, many debt consolidation companies have engaged in questionable tactics, charging fees and not getting rid of the client’s debts. For some consumers, they may lose more money when using a credit consolidation company.
Debt consolidation companies do not have incentive to diligently eliminate a person’s debts when they get paid fees regardless of whether a creditor agrees to be a part of the consolidation process, or how much they negotiate the debt down. This is unlike bankruptcy attorneys, whose fees are reviewed by courts. In a bankruptcy petition, the attorney has to disclose to the court, viewable by the public, how much the attorney charges for the representation.
Credit consolidation agencies do not usually have authority to stop creditors from taking a person’s property, such as foreclose on a home, or continue with collections lawsuits. This is unlike bankruptcy, where there is an automatic stay.
Bankruptcy may imply a life less than what’s planned, but bankruptcy is often the best way to resolve financial problems, leaving a debtor with a life still worth painting. Filing bankruptcy means not letting the past limit the rest of life.
Chapter 13 bankruptcy is similar to debt consolidation. It is for people whose income prohibits them from filing a Chapter 7 bankruptcy. These people may have significant assets they want to protect from getting sold to pay creditors. In Chapter 13, the debtor makes repayments to creditors over a 3 to 5 year payment plan. Each month, the debtor sends payment to the bankruptcy trustee. The entire process is court monitored. At the end of plan period, the court discharges the remainder of the person’s debts.
In the repayment plan different types of debts are treated differently. A debtor’s financial actions will be strictly reviewed by the court after filing bankruptcy. Bankruptcy may take away the fairy tale of getting married, living in a big corner house, with a huge backyard, two kids, and a dog. Some things not to do when filing bankruptcy:
• Use credit cards
• Take cash advances
• Transfer assets with the intent to hide them
When contemplating bankruptcy, consult with a New York bankruptcy attorney prior to paying creditors and transferring property, and keep financial documents in order.