Credit Counseling in Indianapolis
At the end of every seventh year you are to cancel the debts of those who owe you money. This is how it is to be done. Everyone who has lent money is to cancel the debt; he must not try to collect the money; the Lord himself has declared the debt canceled. - Deuteronomy 15:1-3
Credit Counseling Companies Can Make Matters Worse
Credit Counseling companies that advertise on radio and TV claim they can help consumers gain control of debt by negotiating on their behalf with credit card companies. Many of these companies claim they can reduce the interest rate paid on credit card balances, remove late fees or other penalties, and consolidate credit card debt into an easily manageable, single monthly payment. In reality, these companies do not have the legal leverage to force all your creditors to cooperate. It is not unusual for a small portion to cooperate with a repayment plan leaving you to deal with the other creditors who will not be involved in your monthly payment to the credit counseling company.Consequently, any reduction in interest rates or minimum monthly payments is dependent upon what a credit card company is willing to offer -- not on what a credit counseling company tells them they have to do. When you file for bankruptcy, however, credit card companies are required to accept the terms of your bankruptcy: if you file for Chapter 7, your credit card debt can be wiped clean; if you file for Chapter 13, it will be restructured according to a repayment plan you create.
Credit Counseling Scams -- What You Need to Know
If you think negotiating a smaller balance with your creditor will be in your best interest, think again. The result may be you receive a Tax Form 1099 from the creditor for the difference between your original balance and the negotiated new balance as income to you for that particular year. This could subject you to owing tax on what you thought was going to be a write-off. Clients have come in to consult with me after they have already incurred non-dischargeable tax liability as a result of these kinds of credit counseling services.
In addition, unsuspecting consumers are often misled into thinking a credit counseling company will negotiate new repayment terms on their behalf with their creditors for an upfront "negotiation fee." In reality, however, "negotiation" may never happen. Since many of these companies purchase information from credit card companies regarding debt and settlement payments, they know from the beginning what amount of money a credit card company is willing to settle for.
Many of these credit counseling companies charge exorbitant fees for their "services." Adding insult to injury, payments are often structured in such a way that the first six monthly installments paid by a consumer are actually used to cover "fees and charges" levied by the credit counseling company. Afterward, if a person hasn't already filed for bankruptcy by then, installments are applied to outstanding credit card debts.
Why Bankruptcy Makes More Sense and Is Cheaper
If you're transferring balances between credit cards in order to make monthly minimum payments, or are having difficulty paying your mortgage and your credit card bills, it makes more financial sense to file for bankruptcy than use a debt consolidation service.
First, filing for bankruptcy places an automatic stay of relief against creditors and banks. Consequently, creditors and banks are required to halt all collection or foreclosure actions against you. As a result, you buy important time in avoiding foreclosure on your home, having your cars and other items repossessed, while stopping wage garnishment and the freezing of bank accounts.
Secondly, if you qualify for Chapter 7 bankruptcy, your credit card debt can be wiped clean altogether. A credit counseling company cannot discharge debt. If you file for Chapter 13 bankruptcy and the court accepts your repayment plan, credit card companies must comply with its terms. Here, you are in control of your own situation, determining what works best for you, not a debt consolidation company you have to pay for the privilege of "negotiating" on your behalf.
Third, your personal and financial information is shared with your attorney, your creditors, and the court. If you pay a debt consolidation company to negotiate on your behalf, you end up sharing important personal and financial information with a third party you can't always trust. Will your information be sold or shared? What about a debt consolidation company's employees -- can they be trusted with your information?
Contact Indianapolis, Indiana Bankruptcy Attorney Portia Douglas Today
The important thing to remember is there is life after bankruptcy. Too often, people are under the mistaken assumption that if they file for bankruptcy their credit will be forever ruined and they'll never qualify again for a loan or credit card. Nothing could be further from the truth. Don't wait until your debt is completely out of control or you're facing foreclosure to consider filing for bankruptcy.
To learn how we can help you, contact Indianapolis bankruptcy lawyer Portia Douglas today.