Risky Bankruptcy Alternatives: Credit Counseling and Debt Reduction

Risky Bankruptcy Alternatives: Credit Counseling and Debt Reduction

Unfortunately, for many people, the thought of bankruptcy is simply too much to deal with, so instead of taking the appropriate action, they become victims of schemes concocted by sophisticated criminals looking for easy prey.

Credit Counseling

If you are having financial issues and need help, a reputable Auburn bankruptcy attorney like Laura Harris-Courage will provide advice and guidance. What you want to be careful with is credit counseling. If your level of income is such that you could be forced into paying off creditors in full, even if you end up filing bankruptcy, using a local credit counseling service might be the right choice.

However, most income for credit counseling companies comes from credit card companies. In fact, credit counseling companies were initially created by credit card companies as a means of increasing the odds of recouping money. According to the Internal Revenue Service, some credit counseling companies are nothing more than collection agencies.

There are also limitations in that these companies cannot work with every creditor. For that reason, most prefer to focus on credit card companies. Additionally, credit counseling companies advise creditors that their services are being utilized and that any additional credit to you should be declined. Although interest rates might be reduced, credit counseling companies are not able to reduce the principal balance.

Debt Reduction

Another example is debt reduction companies that are notorious for offering to cut debt by 50% or more. While their promise appears to be legitimate and a life-saving solution, in reality these companies scam people. Debt reduction companies impose fees that are often greater than the cost of filing for bankruptcy.

Typically, debt reduction companies work with just one credit card company, which agrees to reduce the payoff balance. For that reason, their services appear to be upfront. However, these companies are fully aware that most people who are facing dire financial problems will never bother to negotiate lower payoffs.

The truth is that most creditors want nothing to do with debt reduction companies. In fact, some will become even more aggressive in their pursuit of you if they know this type of company is involved. The reason is that if you choose not to file bankruptcy when it is obviously the best option, creditors believe that you have something of value not protected under bankruptcy laws. Therefore, they are eager to get hold of any available assets.

When facing serious financial issues, remember that debt reduction is seldom a viable solution, nor it is wise to have a debt reduction company try to get debt reduced on your behalf. The only time debt reduction actually works is when you are seriously behind on payments, perhaps a year or more.

If you are not in a position to file for bankruptcy but you have enough cash to completely pay off your creditors, reducing debt on your own makes sense. However, if an agreement with a creditor is reached, be sure you have something firmly in writing prior to sending any money.

Keep in mind that if an agreement is reached with creditors, the IRS will be notified. As such, you will be required to pay taxes on any portion of the debt that remains unpaid but written off by the creditor.

A Better Strategy for Auburn Bankruptcy or Alternatives

Instead of dealing with credit counseling services or debt reduction companies, we offer a free over-the-phone consultation that will help guide you to the best solution, whether this consists of bankruptcy or perhaps something else. To schedule an appointment with Auburn bankruptcy attorney Laura Harris-Courage to resolve your financial situation, contact us at 855-269-2889.

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