Bankruptcy
Alternatives
Debt Consolidation Services
There are many Debt Consolidation Services available. These services generally provide you with a friendly and personable “Credit Counselor” (who is being paid on commission) to meet with you and convince you to make monthly payments to them, as a way of paying off your debts. I strongly urge you not to go to these Debt Consolidation Services without the assistance of an attorney, as I have met with numerous individuals who have been misinformed, defrauded, or otherwise cheated by these organizations. A Debt Consolidation Service is really just a Debt Collection Agency in Disguise that tries to gain your confidence to get you to pay them.
These people are very sophisticated and experienced operators who have vast experience in convincing individuals to use their services. The individuals who go to them for assistance are people who are honestly trying to avoid Bankruptcy, are upset about their financial situation, and are especially vulnerable to these operators. When you go to them for assistance you are like a sheep walking into a den of wolves. You will be fleeced very quickly.
The first thing that will happen to you is that your counselor at the Debt Consolidation Service will get you to sign a Contract that you will absolutely not understand, and which will allow the Debt Consolidation Service to take much of your monthly payment as their fee. These fees do not reduce your debt, but are taken as their profit from you. Often, many of the payments that you make, along with a percentage of all other payments made by you, will be taken by the Debt Consolidation Service, and will not reduce your debts. Debt Consolidation Services also receive fees from the Credit Card Companies for managing your plan. Often, these services will not even clearly tell you how many payments you will be required to make under the plan. This is why many people notice that after making numerous monthly payments to the Debt Consolidation Service, that their debts have barely been reduced. Of course by then, it’s too late.
Debt Consolidation Services
Frequently Asked Questions
Absolutely Not. The only reason that these services are Non-Profit, is because they want you to believe that they are a charitable organization that is licensed by the government to help you. There is no reason for them to be a Non-Profit organization except that they do so in order to make you feel comfortable about using them and giving them money. Many of these organizations have sister for-profit corporations that they send their profits to, in the form of inflated rental payments and consulting fees, which eventually end up in the hands of the owner. Also, the fact that they are a Non-Profit corporation does not in itself offer you any protection from being cheated.
This is another misrepresentation made by Debt Consolidation Services. They will not tell you before you sign up and pay them fees, that their Consolidation of your debts will be reported on your credit report in a very negative way, and that it can impede your ability to obtain credit, such as credit cards, loans or a mortgage. Debt Consolidation Services will give you a misleading and exhaustive lecture on how Bankruptcy will ruin your life. They will tell you all kinds of false and misleading information, such as that by filing for bankruptcy you will be banished from obtaining any credit, that you will be discriminated against, that you will not be promoted on your job, and that you will suffer humiliation from a bankruptcy by publicly declaring yourself to be a failure. None of this is true. Debt Consolidation Services are closely aligned with credit card companies and they want you to believe this propaganda, because they want you to pay them their fees. Why would a Debt Consolidation Service recommend that you file for bankruptcy in a situation where a bankruptcy filing would result in all of your debts being wiped clean? Bankruptcy will have a negative impact on your credit report. However instead of having many numerous monthly negative references continually made on your credit report by your creditors, for many people the best way to repair your credit is to take one negative report of a bankruptcy, and then work to repair your credit from your new and often debt free financial situation, so that you can apply for a mortgage or loan in the future.
Bankruptcy is a legal proceeding based upon laws passed by Congress and known as the Bankruptcy Code. Congress passed these laws because they understood that people often through no fault of their own incur debt that they cannot repay. If you have a substantial amount of debt, then you should at least consult with a lawyer to determine whether filing for Bankruptcy would be beneficial to you. Why should you suffer through the oppression of debt and allow the stress to affect your relationship with your family. Actually many supporters of Bankruptcy are children’s rights advocates who understand that in many family situations, forcing the breadwinner to pay back debts would only make children suffer because their parents would be unable to properly support them. Do you think that your children will be happy to remember their childhood by saying “well I know that my mom couldn’t afford Christmas presents for us, but I’m so proud of her, because she never missed a payment to her Debt Consolidation Service”.
This is another major problem with Debt Consolidation Services. The contract that you signed with them but did not understand, required that you make payments to your creditors, and to pay many fees to the Debt Consolidation Service. The contract did not obligate your Creditors to continue to accept your payments. They can always change their minds and sue you in court, and freeze your bank accounts. This may come as a surprise to you after you made most of the monthly payments that were required of you. Of course by then, it’s too late.
Probably not. But you should at least demand the following be written into your contract and signed by the Debt Consolidation Service:
1. The Debt Consolidation Service should state what percentage of people who sign up for their program actually successfully complete the program. I assume that it is about five percent. More of these people end up filing for bankruptcy anyway, after spending thousands of dollars on these services.
2. A clear statement as to what fees you will pay, the monthly plan payment amount, and the number of months that you will have to make these payments, and a guarantee that this will not change.
3. A guarantee that your creditors will accept these payments and that they will not transfer your account or change their mind and sue you anyway after you have made many payments, and that if they do, that you will get your payments back.
Unfortunately for you, no Debt Consolidation Service will ever give you these basic guarantees in writing. This is why having an attorney is so beneficial to you. The first responsibility of your attorney is to protect you from harm, by making sure that your filing for bankruptcy will have benefits to you that far outweigh the negative aspects of a bankruptcy filing. Attorneys are licensed and monitored by the State of New York, and they have fiduciary responsibilities to you as a client, to advocate for you and to advise you on your situation, in a confidential manner. Considering that a Bankruptcy attorney is often much cheaper than a Debt Consolidation Service, you should at least contact an attorney for a consultation, which is often given free of charge.
1. The Debt Consolidation Service should state what percentage of people who sign up for their program actually successfully complete the program. I assume that it is about five percent. More of these people end up filing for bankruptcy anyway, after spending thousands of dollars on these services.
2. A clear statement as to what fees you will pay, the monthly plan payment amount, and the number of months that you will have to make these payments, and a guarantee that this will not change.
3. A guarantee that your creditors will accept these payments and that they will not transfer your account or change their mind and sue you anyway after you have made many payments, and that if they do, that you will get your payments back.
Unfortunately for you, no Debt Consolidation Service will ever give you these basic guarantees in writing. This is why having an attorney is so beneficial to you. The first responsibility of your attorney is to protect you from harm, by making sure that your filing for bankruptcy will have benefits to you that far outweigh the negative aspects of a bankruptcy filing. Attorneys are licensed and monitored by the State of New York, and they have fiduciary responsibilities to you as a client, to advocate for you and to advise you on your situation, in a confidential manner. Considering that a Bankruptcy attorney is often much cheaper than a Debt Consolidation Service, you should at least contact an attorney for a consultation, which is often given free of charge.
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Debt Settlement Services
Debt Settlement is a service in which an attorney or a non-attorney service contacts a creditor and requests that the debt be fully resolved through a payment plan or by a lump sum payment of a portion of the debt. This can be used to avoid bankruptcy, but can be difficult to accomplish if creditors refuse to work with you, especially if you do not have an attorney. Also beware of unscrupulous services that may charge you fees upfront without actually helping you. Also if you for example owe $50,000 and agree with the credit card company to settle the entire debt for $20,000, under federal and state tax law you will owe taxes on the $30,000 that you saved and the credit card company will send you a 1099 tax form indicating that you have to pay federal and state taxes on the $30,000. The benefit of Bankruptcy is that you do not pay taxes on any debt that is discharged in bankruptcy.
Bankruptcy Petition Preparer
An industry that has been growing is the Bankruptcy Petition Preparer. This is a typing service that offers to type up your bankruptcy petition at a low fee and then give it to you for you to file it yourself in court and for you to appear in court at the creditors meeting alone.
Bankruptcy Petition Preparer
Frequently Asked Questions
Bankruptcy Petition Preparers are happy to say that you don’t need a lawyer, because they are not the ones who will need a lawyer if something goes wrong with your bankruptcy. Most importantly, they simply fill in the bankruptcy petition with whatever you tell them to type in. They cannot offer you legal advice on how to prepare a petition, how to properly list your creditors, or how to answer the questions listed in the petition. The bankruptcy petition asks numerous questions that are very broad, and which require years of experience by an attorney, in order to properly understand the questions and honestly answer them in a way that benefits you as a client. Remember, in a bankruptcy you will have to answer to answer questions under oath, and your answers will be recorded. It is one thing if you are prepared for these questions by your attorney who knows most of the questions that you will be asked, by going to these meetings on a regular basis. If you do not have an attorney, you are responsible for understanding all of the questions, but you may end up misunderstanding the question and therefore not answering it in a full and truthful manner. The Trustee may then assume that you intentionally lied. This could prevent you from having your debts discharged, or worse it could result in a referral of the matter for criminal prosecution. At this point if you call up your Bankruptcy Petition Preparer, they will say that they told you from the beginning that they are not lawyers, and therefore they cannot help you. The problem is that at this point, hiring a lawyer to undo this mess, could cost you three times the money and aggravation that it would have cost you, had you hired a lawyer from the beginning. Even worse, your attorney may be unable to undo the damage that you may have done to your case by making statements to the Trustee under oath.
In my opinion, you would be extremely foolish to use “We The People” bankruptcy document preparation service, because they are not attorneys. They are cheaper because they do not provide legal representation or legal advice to you. “We The People” will type up your responses that you handwrite on the petition. If you own a typewriter, you can do the same thing and type it yourself. “We The People” has been the subject of numerous proceedings in Bankruptcy Court alleging that they have acted inappropriately and in fact was found by the bankruptcy court to have “committed fraudulent, unfair, and deceptive acts”. In fact, the United States Trustee brought a proceeding against “We The People” and they entered into the following settlement agreement that limits their actions, and places them under the supervision of the United States Trustee. We The People
Bankruptcy is a legal proceeding based upon laws passed by Congress and known as the Bankruptcy Code. Congress passed these laws because they understood that people often through no fault of their own incur debt that they cannot repay. If you have a substantial amount of debt, then you should at least consult with a lawyer to determine whether filing for Bankruptcy would be beneficial to you. Why should you suffer through the oppression of debt and allow the stress to affect your relationship with your family. Actually many supporters of Bankruptcy are children’s rights advocates who understand that in many family situations, forcing the breadwinner to pay back debts would only make children suffer because their parents would be unable to properly support them. Do you think that your children will be happy to remember their childhood by saying “well I know that my mom couldn’t afford Christmas presents for us, but I’m so proud of her, because she never missed a payment to her Debt Consolidation Service”.
The first responsibility that your attorney has is to make very effort to protect you from something bad happening to you during the bankruptcy process. This is why having an attorney is so important. Your attorney will explain the questions that you will be asked so that you will avoid the problems that can develop as a result of misunderstanding the questions being asked of you. Your attorney should plan with you before you file for bankruptcy, perhaps even by selling assets that you are not allowed to keep in a bankruptcy and using the money to buy assets that you are allowed to keep in a bankruptcy. This is referred to as “exemption planning” and is permissible under the bankruptcy law so that you will be able to keep more assets than you otherwise would have been able to keep. Your attorney must also advise you on how to properly answer questions that will be asked of you under oath, to help ensure that your debts will be discharged.
Obtaining a discharge of your debts is so important that it just doesn’t make sense risking it, by trying to represent yourself without an attorney. As a result of all of these pitfalls I suggest that even if you are set on using a Debt Consolidation Service, or a Bankruptcy Petition Preparer that you at least contact an attorney for a free consultation. Before you spend thousands of dollars on a Debt Consolidation Service you at least owe it to yourself to explore all of your options.
If you have any questions, please Call me or e-mail me and I will schedule your Free Consultation to get you started immediately.