Harris-Courage & Grady, PLLC
Alternatives to Bankruptcy – Debt Reduction & Credit Counseling
Because people are so afraid of bankruptcy, they often fall prey to schemes by criminals looking for easy targets. Debt reduction companies offering to “reduce your debt by 40% or 50% or more” are criminals in disguise. These criminal businesses collect fees which exceed the c ost of filing bankruptcy. They usually have an agreement with one credit card company allowing them to reduce a balance payoff, which makes them look legitimate. However, these criminal debt reduction companies know that most creditors will not negotiate a lower payoff. In fact, most creditors will simply ignore all communication attempts from these organizations. Some of the creditors will actually become more aggressive when they know a debt reduction company is involved. Why? Because if you are not filing bankruptcy when you should, the creditors think you have something they can grab which cannot be protected by a bankruptcy. They want to be the creditor to get your assets.
Debt reduction is rarely the best strategy to eliminate debts, and it is never smart to hire anyone to do it for you. Debt reduction only works if you are seriously behind in your payments, such as a year behind. If you truly cannot file bankruptcy and you have sufficient cash to pay the creditor all at once, then it might make sense for you to try debt reduction on your own. Make sure, if you get any agreement from a creditor, to have it in writing before you pay them. Also, be aware that the creditor will be sending the IRS notice of the agreement. The IRS will require that you pay taxes on the unpaid portion written off by the creditor.
Using a local credit counseling service might be appropriate if you make so much money that you would be forced to pay creditors in full, even if you were to file bankruptcy. However, be aware that the credit card companies are the primary source of income for credit counseling companies. In fact, the credit counseling companies were originally created by credit card companies as a way to increase their chance of repayment. The IRS has labeled some of the credit counseling companies as disguised collection agencies. The credit counseling companies cannot work with all creditors and they prefer working with just credit card companies. They also will report that you are using their services to alert creditors not to give you further credit. They might be able to reduce your interest rates, but they will not reduce the principal balances.
We offer a free phone consultation to help you determine if bankruptcy or another solution may be better for your situation. Please call us and schedule an appointment to begin your journey to a fresh start.