Grossbart on Bankruptcy Law

Debt Relief (settlement?) Firms Complaints

Complaints about debt settlement companies are on the rise. The web site Credit.com says complaints have doubled from last year. American express won't even work with debt settlement companies.

How does it work? First the client is instructed to pay the debt settlement company on a monthly basis instead of paying the creditors (this has a negative inpact on your credit score). Many times these companies charge a large up front fee(10-20% of total debt due) that is taken from this payment. While the debt settlement company is being paid the creditors are not. The clients interest and late fees begin to accrue. Also, the client incurs taxes on the amount of debt forgiven in a settlement.

If you are against filing bankruptcy, only consider using a non-profit credit counseling organization.

Bankruptcy or Debt Management?

People who are looking to resolve their inability to manage their debt are typically presented 2 options - bankruptcy or debt management. No one wants to file bankruptcy. It is the last solution. In the last several years particularly after the new bankruptcy law was enacted, debt management companies promoted themselves as the "alternative" to

bankruptcy. Their selling point is that it is "not" bankruptcy but are silent on its impact on your credit report. Fact - it does have a negative impact on your credit report. Further you should ask what percentage of their "customers" (remember it's a business) are successful in reducing their debt permanently. Ask what happens if even one creditor does not agree with they are promoting? Further, what you don't receive from a debt management company is a "discharge" order. A discharge is a court order that discharges your dischargeable debt permanently.