Beware the Credit Counselor (Top 5 Things You Need to Know)

Beware the Credit Counselor:  Top 5 Things You Need to Know

       As a bankruptcy attorney, I have seen how debt has serious consequences for my clients in Hamilton County, Indiana.  Often, the people who are coming in to meet with me see themselves as at the end of the line.  They are stressed out, afraid, embarrassed and are simply over it.  They have done everything they can think of and then some to get themselves out of debt.  And, in an attempt to avoid bankruptcy many of my clients have turned to debt consolidation companies.

       Debt consolidation companies typically tell individuals to stop paying their credit card bills and instead to pay some monthly amount to the debt consolidation company so that they company can negotiate their debts and help them become debt free.  Typically the company will set up a plan for an individual telling them that they can settle their debts if that person will pay x dollars per month for x number of months.

       Overall, I do not have any objection to a client attempting to avoid bankruptcy through debt consolidation.  I typically tell my clients that if they believe they can pay off their debts in 7 to 10 years then they should do so instead of filing bankruptcy.  So, making payments to a debt consolidation company on a monthly basis can be a very effective way to get yourself out of debt.  However, if you are considering a debt consolidation company, here's what you need to know:

1.  FEES.  Unlike attorneys, debt consolidators are not subject to ethical rules.  Attorneys must charge reasonable fees.  When considering debt consolidation read the provision on fees carefully.  Some debt consolidation companies charge a percentage of the amount that their clients pay in each month.  Others will set up a client on a monthly payment plan and the debt consolidation fee will be the first several months of the repayment program.  Yes.....the entire amount that the debt consolidation client pays each month to the company for several months is unavailable to actually settle a debt, because it is going to the company's fee.  This is a huge problem, which I will address further in a second  But, if you are considering a debt consolidation company, go with one that takes a percentage of each payment so that the company begins acquiring money to settle your debts sooner.

2.  WHAT DEBT CONSOLIDATION COMPANIES DO.  Debt consolidation companies are taking the money you pay each month (less their fee), and putting it into an account for you which will be used to pay a debt settlement.  These companies don't have any magic powers or know about any unknown laws that entitle you to settle your debts for less.  They also cannot (nor could anyone else) guarantee that so long as you make all of your payments that your debts will be settled for that exact number.  For the most part, they are sending out a letter to your credit card company asking them to accept lower payments or a specific amount to put you on a payment arrangement or to settle your debt.  Whether the credit card company will agree with this offer is basically out of the hands of the debt consolidation company.  The credit card company will either accept this offer or they will not.  If the credit card company decides not to accept and you are no longer making your monthly payment to the credit card company, you will eventually be sued.  Which brings us to number 3....

3.  LAWSUITS.  Most debt consolidation companies don't have any attorneys negotiating on your behalf.  Therefore, if you get sued because a credit card company hasn't received money as fast as they want or because they choose not to deal with the debt consolidation company you are on your own.  If you show up to court and tell the judge that you couldn't afford the credit card company payment and have signed up for debt consolidation the judge is still going to enter a judgment against you for the amount owed on the credit card.  This means that at some point your bank account could be frozen and your wages could be garnished.  And the debt consolidation company isn't going to have an attorney represent you in Court.  The debt consolidation company is probably out of California or Florida and is not about to hire an attorney to represent your interests in Indiana.  Bottom line....if you get sued, you are going it alone.

4.  DON'T UNDERESTIMATE YOU.  While I do represent clients in debt consolidation I always tell them that this type of work (so long as a lawsuit hasn't been filed) does not require a lot of legal expertise and you can do it yourself.  There is no reason that an individual cannot call up his own credit card company and offer a percentage of what is owed on the balance.  The worst that can happen is that the person on the other end of the line says no.  However, many people fee so stressed out by their financial situation they decide that they would rather pay someone else to do the negotiating for them, which is a personal choice.  However, this is certainly something you can do on your own.

5.  REAL INDIANA EXPERIENCE.  Recently one of my clients told me that he had enrolled with debt consolidation a year ago and had been paying about $800.00 per month to that company for the last year.  He expected the debt consolidation company to pay off nine (9) creditors so long as he paid $800.00 per month for two years.  I heard this individual's story when he showed up at my office with copies of lawsuits filed by eight (8) of the nine (9) credit card companies.  When I reviewed the debt consolidation contract I found that my client had paid the debt consolidation company's fees for about 11 of those 12 months.  Therefore, the debt consolidation company had not built up any money to settle my clients' debts.  However, they had happily accepted a fee of approximately $7,000.00 (that is not a typo) for their "work."  Of course, the debt consolidation company wasn't going to help my client deal with the lawsuits, so he cancelled the debt consolidation program and I helped him settle his lawsuits.  While I do not know exactly what my client was charged for me to work on these lawsuits, I do know it was no were near $7,000.00 and probably more in the range of $1,000.00.

          To sum it up, debt consolidation can be a useful tool for folks dealing with debt.  However, this is not a decision that should be taken lightly and many questions should be asked prior to signing a contract with a debt consolidation company.  If you are struggling with debt in Fishers, Noblesville or Carmel, Indiana I can help.  I provide a free initial consultation and I will be able to tell you whether debt consolidation or bankruptcy can be tools in your fight to get out of debt.  Call 575-8222 to set up an appointment with me at Halcomb Singler, LLP.

         Lastly, I'd like to hear about the experiences that any of you have had with debt consolidation companies (good or bad).  Without naming the specific company, leave a comment about your experience with debt consolidation.

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.