Are you having trouble paying your bills? Are creditors calling your workplace or calling family members for information? Have you been served with a foreclosure complaint or a debt collection lawsuit? If so, you may need to file bankruptcy to get rid of your debt. People file bankruptcy for several reasons — unemployment, medical bills, divorce, loss of a spouse, and business failure.
Before turning to a debt consolidation company, seek the advice of an experienced bankruptcy attorney. At no cost to you, we will help you determine the best course of action for your situation. You can trust us to give you the honest advice you deserve.
Beware of Debt Consolidation Companies
Debt consolidation companies sound appealing because they advertise a low-cost, simple way of getting rid of your debt; however, they do not fully explain the risks of using a debt consolidation company.
Disadvantages of using a debt consolidation company include:
- Creditors are not required to accept lower payments, reduce interest rates, or stop assessing late fees and other charges.
- Creditors can file debt collections lawsuits even if the creditor has been participating in the debt consolidation program.
- Debt consolidation companies charge fees for their services. Sometimes these fees are very expensive. This increases the amount of debt that you owe and decreases the amount of money you are paying toward your existing debt because the debt collection company deducts its fees from your monthly payment amount prior to sending any money to your creditors.
- You have no control over the amount of the payments made to your creditors or control over how the payments to creditors are prioritized.
- Because you are paying partial payments to your creditors, it will take you much longer to pay off your debt if you use a debt consolidation company. This increases the amount you pay because of the additional charges for interest.
- Debt consolidation does not solve the problem if you do not have the income to pay your debts.
- If you borrow money through a debt consolidation company with a secured lien, you are placing an asset at risk by turning unsecured debt into secured debt. If you are unable to make the monthly payments, you will lose the collateral (i.e. your home).
- If a creditor “forgives” a portion of your debt, the creditor is required to report this to the Internal Revenue Service at the end of the year. The creditor will issue a 1099 to you for the debt that was “forgiven.” The IRS requires that you report this amount as income on your tax return, which could increase the amount of taxes you owe for that year.
- Creditors continue to report late payments to the credit reporting agencies. Even though you are paying some of your debt, your credit rating will continue to be harmed by the late payments.
For some people, debt consolidation may work; however, for most people who are struggling with debt, a bankruptcy may be the best option for resolving your debt problem. Unfortunately, a debt consolidation company may not tell you that because the company is in business to make a profit and the longer the company can keep you making payments, the more money the company will make. However, we will discuss all of your options for resolving your debt problem during your free bankruptcy consultation.
Receive More Information about Bankruptcy and Request a Free Bankruptcy Consultation
The bankruptcy attorneys of Kain & Scott want to help you break free from debt. We offer a free bankruptcy consultation to individuals in the Twin Cities and the surrounding areas so that people can receive competent legal counsel and real answers to their bankruptcy questions. You should not make a decision whether to file bankruptcy until you have met with an experienced bankruptcy attorney who understands bankruptcy law and who will provide you with information about all of the possible solutions to your debt problems.
Our attorneys never “push” you into filing bankruptcy — we want to help you determine the best and most affordable solution for your debt problem. We can only do this after discussing your financial situation in detail because everyone’s situation is different. In order to do this, we offer a free bankruptcy consultation so that we can listen to you and get the facts before we offer bankruptcy advice.
For more information about what to expect during your free bankruptcy consultation, download a copy of our free Bankruptcy Consultation eBook.