Past-due notices and creditor calls can push you to take drastic steps to settle your debts. But should you work with a debt consolidation company, or talk to a bankruptcy attorney? It turns out, many debt relief services don’t live up to their advertisements. Here’s why you should talk to a bankruptcy attorney first when deciding on bankruptcy or debt relief.

Should I File for Bankruptcy or Debt Relief

You may have seen advertisements on TV promising to “Consolidate your bills!” or “Wipe out your debts.” But these for-profit debt relief services rarely work. In fact, the U.S. Federal Trade Commission (FTC) has issued warnings against so-called “debt relief services” that promise:

“Consolidate your bills into one monthly payment without borrowing.”

“STOP credit harassment, foreclosures, repossessions, tax levies, and garnishments.”

“Keep Your Property.”

“Wipe out your debts! Consolidate your bills! How? By using the protection and assistance provided by federal law. For once, let the law work for you!”

These misleading advertisements make promises the debt relief companies can’t keep. That means, for many people who hire them, it isn’t a question of, “should I file for bankruptcy or debt relief,” as much as “my debt relief has failed, can I still file for bankruptcy?”

Problems with Debt Relief Programs

The problem with for-profit debt settlement companies is that they tell their customers to stop paying their creditors right away. Instead, debt relief customers make monthly payments to the debt settlement company first, and then the company tries to negotiate with the debtor’s creditors after taking their cut off the top. This arrangement means:

• There’s less money to go around to the creditors
• Nothing requires the creditors to accept the debt relief company’s proposed terms
• Debtors’ interest, penalties, and fees continue to add up as negotiations continue
• Creditors can still pursue collections against the debtor while working with the debt relief program’s representatives
• The debtor’s credit rating continues to take hits for missed payments and high balances

Essentially, debtors who work with for-profit debt relief programs are paying a third party to negotiate a settlement on their behalf, while also making their debt situation worse.

While there are non-profit credit counseling services available, their reach is limited. They are not the ones advertising to debtors to “wipe out their debts.” Instead, all too often, the customers of these for-profit debt relief programs come out of the settlement process still owing more than they afford to pay. They have paid the companies hundreds, even thousands of dollars and still end up filing for bankruptcy anyway.

Benefits of Bankruptcy

Rather than putting your hopes in a debt relief program that may or may not settle your debts, consider whether bankruptcy is right for you. Unfortunately, the FTC’s warning about debt relief also perpetuates the negative stigma surrounding bankruptcy. Many people are afraid to pursue this effective debt-canceling process simply because they are worried about what others will think of them if they learned they filed for bankruptcy.

Yes, bankruptcy does negatively impact your credit score, and it can require sacrifices. However, unlike debt relief programs, bankruptcy has built-in protections for debtors. These protections start as soon as the bankruptcy petition is filed. They include:

• An automatic stay on all collections actions, including repossession and foreclosure
• Mandatory participation for all unsecured creditors
• Delegation of all collections issues to your bankruptcy attorney
• Exemptions that protect your most important assets
• Debt counseling to help avoid future budgeting problems
• Discharge of most unpaid debt balances at the close of bankruptcy

While a bankruptcy does show up on your credit score for 7 to 10 years, the process of filing for bankruptcy, making timely payments on remaining debts, and then receiving a discharge can also improve other elements dragging that score down. As a result many people who file for a Chapter 7 bankruptcy see their overall credit scores go up by the time the process is complete.

Work with a Bankruptcy Attorney to Get Relief from Debt Collectors

Even if you don’t end up filing for bankruptcy, working with an experienced bankruptcy attorney can be the best way to negotiate a settlement and get relief from debt collectors. Often, if creditors know you are considering filing for bankruptcy, they will be willing to negotiate more favorable terms to resolve your debt. Your attorney can advocate on your behalf, resolving uncollectible debts and working out payment plans with secured creditors even before sending your bankruptcy petition to court.

At John A. Steinberger & Associates, P.C., we have seen what happens to families who use for-profit debt relief programs in the hopes of avoiding bankruptcy. We have helped many of those families pick up the pieces left after the scam is over. We are a full-service bankruptcy law firm in Southeast MI, serving debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. We meet with clients considering their bankruptcy options in Michigan to decide whether to file for bankruptcy, or whether a non-bankruptcy option may be right for them. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.