Bankruptcy attorney Edward Boltz
We've written here in multiple articles about the dangerous and misleading promises made by debt settlement companies. The ads sound great – they promise to get you out of debt for drastically less than you owe and imply that they have some sort of extraordinary negotiating power to deal with creditors. Nothing could be further from the truth. They charge sizable fees and this would be less of an issue if the debt relief they achieved more than made up for it, but this is simply not the case.
How North Carolina Consumers Are Protected from Predatory Firms
NC's Attorney General Roy Cooper has pushed for and obtained legislation that makes it illegal for debt settlement firms to take up-front fees for debt relief, but, unfortunately, many consumers aren't aware of this and will pony up money they can ill afford to pay out for the promise of drastic debt relief. The AG has been aggressive about suing firms for taking advantage of cash-strapped North Carolina consumers, but this doesn't make up for the damage done.
How Debt Settlement Companies “Work”
A debt settlement company will tell you to stop making payments to your creditors and instead send the money to them. They then negotiate with your creditors to try and get them to accept a reduced amount. They are supposed to use the money you send to pay your creditors and keep a small portion of the money for their services. In reality, most pay themselves first and produce little, if any, results. Research has shown that debt settlement companies rarely fulfill their promises.
Why Debt Settlement May Lead to Bankruptcy Rather than Prevent It
Attorney Edward C. Boltz, one of our North Carolina bankruptcy experts, was interviewed by the New York Times about debt settlement companies and said, “We see clients who have ended up seeking bankruptcy protection despite having gone through debt settlement. Settlement companies usually will negotiate credit card debt, but often may not include medical or tax debt in their services. So clients who have a broad mix of debt may not get the relief they need.”
Other Negative Outcomes from Using Debt Settlement Firms
In addition to not getting the staggering debt relief they promise, many consumers that work with debt settlement firms see their debts increase rather than decrease. Why? Debt settlement firms may take too high a share of the funds they are given and not negotiate successfully to whittle the debts down. And while you're not paying your debts during their negotiation period, interest and fees will pile up. You will also have hit after hit on your credit report during the negotiation period because you won't be paying your bills. This isn't good either.
The Bottom Line on Debt Settlement vs Bankruptcy
For the most part, you can negotiate as effectively with your creditors as a debt settlement company can. If you're late paying your bills and are cash-strapped, they may be willing to work with you to accept a reduced settlement or take additional time to pay. And if you are just so overwhelmed with debt that you can't pay your bills, bankruptcy will offer more debt relief.
How We Can Help If You've Been Taken Advantage of by a Debt Settlement Firm
Engaging with a debt settlement firm is iffy at best while a reputable bankruptcy attorney can get you solid results in less time and with no risk. But what if you've already given money to a debt settlement firm and had little to no results? We have a track record of winning refunds for our clients from debt settlement companies as part of the bankruptcy process.
Contact the North Carolina bankruptcy professionals at the law offices of John T Orcutt for a free consultation on getting your financial fresh start today.