Perhaps you’ve seen the ads: Companies on the Internet, throughout the country offering a plan to significantly reduce the amount of debt consumers owe, as well as the percentage rate on those debts. It’s all in the name of avoiding bankruptcy, and all too often, it’s nothing more than a scam. If you are having trouble paying your bills, an experienced Southern Illinois/Missouri bankruptcy lawyer can examine your financial situation and recommend the best option in your situation – whether it is bankruptcy, credit counseling or some other alternative.
Recognize That Bankruptcy Isn’t That Scary
Everyone knows that bankruptcy has a significant impact on your credit score and remains on your credit report for as long as 10 years. The ads offering an option to bankruptcy are misleading because many consumers in difficult financial straits are already behind on their mortgages and other bills. That means their credit standing has already been significantly damaged. Bankruptcy won’t do too much more damage from a credit standpoint, but it can wipe away debts and finally provide a consumer with a way to a brighter financial future. Check with a bankruptcy lawyer to learn precisely what impact to expect from a bankruptcy filing.
How the Debt Settlement Scam Works
The scams operated by many debt settlement companies work like this: The company gets your business by promising to reduce your debts by as much as 70 percent, giving you a workable alternative to bankruptcy. These companies often charge fees upfront – in many cases they represent a percentage of the total debt. The consumer is turned over to a debt negotiator who then promises to get creditors to lower interest rates and the balances owed. The consumer sends a single check each month to the debt negotiator or their company. That money is distributed among the creditors and usually includes a month fee as well. In some cases, the money never even reaches your creditors.
Federal Trade Commission on Debt Settlement Scams
While there are many legitimate debt settlement companies, the FTC has recognized that many are only interested in scamming consumers. The warning from the agency is blunt: “There is no guarantee that the services debt settlement companies offer are legitimate. In fact, if you stop making payments on a credit card (debt), late fees and interest usually are added to the debt each month. This can cause your original debt to double or triple. All these fees will put you further in the hole.” The FTC also points out that if a creditor agrees to reduce the amount you owe, that savings is generally considered as income for income tax purposes. That’s a point that few debt settlement companies make clear.
Learn the Lesson of Legal Helpers Debt Resolution of Chicago
The Chicago-based law firm, Legal Helpers Debt Resolution LLC, was targeted by the Illinois Attorney General’s Office beginning in 2011 for a nationwide debt settlement scam. The company offered its services as a law firm to help consumers reduce debts. But Attorney General Lisa Madigan said the real goal of Legal Helpers was to collect upfront fees to enter into a debt collection agreement, which is illegal in the state. In the end, most consumers never received any debt relief. In July 2012, Legal Helpers agreed to pay $2.1 million in restitution to customers in Illinois.
Tips for Consumers Hoping to Avoid Bankruptcy at all Costs
If you’re successfully able to change your spending habits and have a steady source of income, it may be possible to avoid bankruptcy. But spend some time with a bankruptcy lawyer to make sure you understand the impact of bankruptcy. There are many myths regarding bankruptcy, and it’s important to know the truth so you don’t turn to a debt settlement scam that will leave you in even worse financial shape. Did you know that it’s quite possible to bounce back quickly from bankruptcy, ending up with credit scores near or above 700 within a year? A bankruptcy lawyer can offer specific tips to rebuild your credit.
Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.
