Non-Bankruptcy Options
Is bankruptcy my best option to find debt relief or should I try debt reduction options like debt settlement?
If you are considering debt settlement or loan modification as an option instead of bankruptcy, there are several factors to consider.
First, protect yourself from predatory practices where the focus is on making money, not helping the debtor. Even the California Trade Commission recommends that consumers be wary of scammers promising high success rates. No company can guarantee success in modifying your terms with a creditor. Many of these companies are under investigation or have been served restraining orders for their “shadowy and unscrupulous” practices. Before you decide to pay for these services, first check the ratings of the debt settlement companies at the Better Business Bureau, or better yet, check out the many free services available to assist you in this area. See our Debt Help links in our Resources section for more information.
Secondly, the creditors are reluctant to modify the terms. If you make too much, it appears you can afford to make the payments without adjustment. If you make too little, it is determined you wouldn’t be able to make the payments anyway so you are denied the modification. Very few modification requests are approved. For example, Bank of America has approved only 4% of their modification requests and Wells Fargo at 6% reported by Bloomberg.com in an August 4, 2009 article.
Thirdly, debt settlement has the potential disadvantages of negatively impacting your taxes, providing no guarantee that the creditors will settle resulting in more debt, lost time and no relief, and will not stop your creditors from attempting to collect the debt while you negotiate. You may be better off saving your money and filing for bankruptcy instead of the expense of debt settlement or loan modification. By simply investing one hour in a free consultation you can determine if bankruptcy is right for you.
Debt Negotiation/Settlement
For a fee upfront, debt negotiation companies offer to negotiate with your lenders to lower the amount of your debt on credit cards, auto loans, or home mortgages. Unfortunately, many of these companies have made false claims of success, and in many cases, never contacted the lenders on behalf of the debtor. Debtors place all of their trust in these debt negotiation companies only to fall further behind with their payments and no legal protection. Debtors end up losing their fee and negatively impacting their credit further. Try contacting your lender yourself instead. It's free!
Debt Consolidation
Paying one smaller monthly payment to one company instead of higher payments to several may seem enticing, however consolidation of debts typically results in excessively high interest rates and high fees. You end up paying much more in the long run.
Debt Elimination
This is another upfront fee scheme where the debt elimination company produces a document supposedly absolving you of your debt. Unfortunately, this document has no legal standing and you have just handed your money over never to see it again when it could have been used towards your debts. The only legal way to eliminate your debt is through bankruptcy.
Foreclosure
Homeowners who are having trouble or have fallen behind in making their mortgage payments may have options that would allow them to avoid foreclosure and bankruptcy. For more information on foreclosure prevention, check out our Foreclosure Information links in our Resources section.
Beware of offers made once your house is in foreclosure - there are a number of fraudulent schemes specifically directed at individuals facing foreclosure. See our Consumer Protection links in our Resources section to report any suspicious proposal, such as one that requires transferring your property to a third party in order to avoid foreclosure.
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