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Harris-Courage & Grady, PLLC April 6, 2018

We see many clients who have tried to avoid bankruptcy by attempting credit counseling or debt reduction. We want you to avoid the pain of failure to get out of debt that these methods often cause, because they just aren’t effective.

Credit Counseling

Before you visit a credit counselor, you should know 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 to increase their chance of repayment.

The IRS has labeled some of the credit counseling companies as disguised collection agencies. 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.

Debt Reduction

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 charge MORE than the cost of filing bankruptcy. These criminal debt reduction companies know that most creditors will not negotiate a lower payoff. In fact, most creditors will simply ignore all communication from these organizations. Some 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. 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.

Bankruptcy is usually the quickest and easiest way to get out of debt. Call our office to get your questions answered. It’s free, confidential, and there’s no obligation.