If you’re struggling financially, filing for personal bankruptcy may help you eliminate your debt and achieve a fresh financial start—but bankruptcy is not the only option for those in need of debt relief. The New York Times recently published an important article about the growing prominence of debt settlement firms and the potential dangers they pose to debt-laden consumers.
Here’s a look at some of the myths surrounding debt settlement and personal bankruptcy and what each option can realistically do for people in need of financial help.
- Profitability: One of the most important things to remember about debt settlement firms is that they are generally structured as ordinary businesses, with the goal of making a profit. This means that their primary interest is in bringing in money rather than improving customers’ finances. Bankruptcy, on the other hand, is governed by federal and state laws. Bankruptcy courts exist to facilitate the bankruptcy process, which leads (when successful) to government-mandated financial renewal.
- Cost: Because they’re run as independent business ventures, debt settlement firms can charge whatever fees they want for their services. Bankruptcy, on the other hand, is regulated by federal and state governments, and so costs a uniform amount no matter where you file.
- Services rendered: Because bankruptcy protection is offered uniquely by the bankruptcy court, you cannot get the benefits of bankruptcy (including the automatic stay’s protection from creditors, discharge of and/or a modified payment schedule for debts and more) from any other debt relief solution. Debt settlement, on the other hand, requires no special skill or knowledge to do—anyone can call her own creditors (for free) and negotiate in the way debt settlement companies claim to.
- Qualifications: If you enlist the services of a bankruptcy attorney, you can view his diploma to verify his qualifications, but there is no degree required to work at a debt settlement firm. When you enter a debt settlement agency, you don’t know whether the employees have adequate background information, negotiation skills or experience to justify your paying them to help you out of debt.
Bottom Line
While bankruptcy is not for everyone, keep in mind that debt settlement is not a guaranteed solution. The Times article refers to the prevalence of debt settlement agencies that essentially work as scams: they take customers’ money but fail to take any action to reduce their debt burdens.
In some cases, the article notes, people who paid debt settlement services thousands of dollars later ended up filing for bankruptcy anyway because the debt settlement firm did little or nothing to alleviate their debt burdens.
Remember: if you’re struggling financially, you can take the initiative to call your creditors and ask for a lowered interest rate, a reduced balance or more time to pay. That’s essentially what debt settlement firms claim do for you, but they require you to drop serious cash for that service.
Similar Posts:
- Debt Settlement Companies Described As Consumer Scam By N.Y. Times Article
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- What You Should Know About Debt Settlement
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