Debtors who have faced obstacles to paying off their debts when due have no doubt received more than their fair share of demanding letters and phone calls, and the thought of filing bankruptcy and getting rid of their debts, and thus the constant demands, can be quite appealing.
Before making a decision to pursue that route, which can have long-term effects on credit rating and the ability to make large purchases, debtors may wish to consider other, less drastic alternatives. Talking through these options with an experienced bankruptcy attorney at in can help make sense out of the myriad complex and confusing choices that must be made at an already stressful time.
Informal Methods of Debt Resolution
If the debtor’s financial problems are only temporary, he or she may want to ask creditors to accept lower payments or to schedule payments over a longer period of time. Creditors may be receptive to these ideas if the debtor has been a prompt payer in the past, or if the specter of bankruptcy is raised, since creditors know that once a bankruptcy proceeding is initiated they will probably collect only a portion of what is owed. In addition, creditors may wish to avoid the difficulties of a court proceeding to collect on the debt, which can be time-consuming and expensive.
Consumer Credit Counselors
Consumer credit counselors can also help creditors work out a repayment plan. Some so-called “credit counselors,” however, prey on overwhelmed consumers, promising “a clean slate,” often for a flat, up-front fee. They may promise to contact creditors and convince them to accept lower payments or to charge lower fees and interest rates. In many cases, unfortunately, the only ones who end up in better financial shape as a result of these “efforts” (or the lack thereof) are the counseling organizations themselves, while the consumers are left with even fewer resources as a result of high fees and more delinquent debts.
Beware of Scams
Although reputable credit-counseling agencies that actually provide valuable services to financially overwhelmed consumers do exist, vulnerable debtors often fall prey to less scrupulous services. Tips that can help consumers avoid the scams include:
- Beware of promises that sound too good to be true; claims of helping you “get out of debt easily” are a red flag
- Deal with a reputable agency by checking with state consumer agencies and the local Better Business Bureau to make sure there have been no or few complaints against the organization, and that the complaints that have been raised were favorably resolved
- Verify that the organization provides counseling and education, as well as debt consolidation and payment services, to help consumers achieve financial stability and remain debt-free
- Carefully read through and have your lawyer review any written agreement that a credit counseling organization offers to make sure it describes in detail the services to be provided; the payment terms for these services, including their total cost; how long it will take to achieve the desired results; any guarantees offered; and the organization’s business name and address
- Avoid paying up-front fees — reputable agencies do not charge big up-front fees, but may take a small monthly fee for a debt repayment service; the initial consultation should always be free
- Beware of any high fees or required contributions, like high monthly service charges, that may add to the overall debt load and defeat efforts to pay off bills
Confirm payments with creditors. Some debt repayment services require the consumer to periodically send it a lump-sum check that it divides among the creditors. Debtors who enter into these types of arrangements should verify with their creditors that the payments are actually being made.
If a debtor’s financial troubles are long term or if his or her creditors will not informally agree to an alternative payment plan, bankruptcy may be the best way for the debtor to get out from under an insurmountable debt load. Although it is not without its adverse consequences, bankruptcy can be the right option to enable debtors to make a fresh start. An experienced bankruptcy attorney at in can advise clients about whether bankruptcy is the right choice for them.