Readers may remember Ocean’s Eleven, the heist movie that was remade several years ago with George Clooney, Brad Pitt, and Matt Damon. Heist movies are one of the few ways typical Americans see con artists. They’re portrayed as handsome villains who rob the rich. In reality, scammers aren’t groups of experienced criminals with expert skills at cracking safes and hacking security systems. It’s much easier to target poor people who are already in desperate circumstances and are much more willing to believe that someone will help them. Once the economy turned south and people started losing jobs and running into debt problems, a whole new way to exploit the poor emerged: debt settlement.
Debt settlement companies claim to offer to broker a deal between you and your creditors resulting in you paying them a lump sum in exchange for keeping you out of bankruptcy court. This is the real rub, people overvalue their credit ratings and since many Americans have never dealt with the bankruptcy system, they’re much more anxious contemplating it.
Here are several reasons to consult with a bankruptcy attorney, i.e. a licensed professional who has fiduciary obligations to his or her clients unlike debt settlement companies.
(1) Creditors are often willing to settle with those who are delinquent on their accounts, but they want a lump sum payout rather than installment plans that you can discharge in a Chapter 7 New York bankruptcy. Debt settlement companies demand that their clients send them money before they’ll contact the creditors. Often they’ll try to charge their fees up front, which the Federal Trade Commission prohibited in 2009. The FTC rule does not apply to Internet sales, so most debt settlement occurs over the Internet out of state.
(2) Meanwhile, the creditors will not wait. If the debtor defaults, they will sue for the balance while the debt settlement company does nothing. It may even demand its clients pay it before the bank. Once the creditors sue, debtors find demanding a refund extremely difficult because the creditor is out of state.
(3) Because the debtors aren’t handling their financial problems, their debts are mounting, meaning their credit ratings are getting worse and not better. As a result, in many cases, the debtors end up in bankruptcy anyway, which is the selling point of debt settlement.
(4) Even if things work out and the bank agrees to the settlement, the debt settlement company won’t tell debtors that they will have to pay income tax on the forgiven debt. The bank will send the debtor a 1099-C form informing them of how much debt it forgave. In bankruptcy, debtors do not pay income tax on discharged debt.
Stay away from debt settlement. Bankruptcy attorneys are officers of the court, and their trust accounts are monitored by bar authorities.
For more questions about consumer debt, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.
