Be careful in working with debt-consolidation companies as an alternative to filing for bankruptcy protection and discharge of debt. It may sound like a good idea to have someone working on agreements to consolidate a number of credit card, medical bills and other collection issues into a single payment
that will pay the creditors on an equal basis at a discounted rate, but the plan falls apart if a single creditor decides that they would rather move to the head of the line by going to court. A single creditor with a judgment against you can use that judgment to seize bank accounts or garnish wages and then the whole debt-consolidation plan fails.
You may hear that debt consolidation will look better on your credit history than a bankruptcy, but credit scores often rebound in the first year after a bankruptcy through the elimination of negative accounts that are discharged by the bankruptcy. We use a three reporting company credit report service that includes a prediction of your credit score a year after the bankruptcy completes, so that you can be well-informed about the impact of the bankruptcy on your credit score.
We also provide information about how to fix credit reporting errors on the Life After Bankruptcy page of this website.
There are financial advisers in the local community who may be able to help you with improving your credit score without debt-consolidation schemes. These advisers may also be able to assist you with fixing credit report errors after a bankruptcy.
You can search under credit restoration and Washington to find a list of providers.
Here is a short piece from Parade magazine from 2010 about debt relief scams:
Americans owe $2.5 trillion in consumer debt, according to the Federal Reserve. As a result, thousands of debt-settlement companies have sprung up, offering to reduce the amounts people owe in exchange for a fee. Authorities warn, however, that many of them are just ripping off customers.
A recent report from the U.S. Government Accountability Office (GAO) found widespread abuse, fraud, and deception among forprofit debt-settlement firms. Arkansas and Wyoming have banned most types, and the Federal Trade Commission is weighing new regulations.
“It’s a terrible scam,” says Illinois attorney general Lisa Madigan, who has filed seven lawsuits and initiated state legislation to monitor debt-settlement agencies. “All they do is collect high fees without talking to your creditors, helping you save money, or getting you on a budget.” One New York couple ended up paying 140% of the amount they originally owed.
Not all for-profit debt businesses are bad, insist industry reps. “They can be a good option for consumers who have some income and want to avoid bankruptcy,” says John Ansbach of the United States Organization for Bankruptcy Alternatives, a group of 200 debt-settlement companies. “There’s an important role for ethical providers.”
Source: Parade Magazine, June 27, 2010
SCAM ALERT – An infrequent national bankruptcy scam is taking place. Con artists posing as your attorney are calling bankruptcy clients. The calls appear to originate from our office, but that is part of the scam. The caller will tell you that you need to wire money to avoid an arrest warrant. Do not send money and call our office if you have any questions.