Beware of Debt Consolidation

by Hermin Dowe on October 8, 2012



There is a major industry that preys on the unsuspecting public in this harsh economic climate.   They claim that they’re equipped to help you get out of debt without filing for bankruptcy.  There are a few honest ones who might be able to help, depending on your circumstances.  When evaluating these companies and comparing them with the option of filing for bankruptcy, you should compare the services they are offering with the features of bankruptcy.

With a Chapter 7 bankruptcy, your debts are all wiped out and you move on with your life.  If you are filing a Chapter 13, then you will make one payment to the trustee each month and your creditors have to abide by the amount they receive from the trustee.

In a consolidation, the company theoretically takes a portion of your monthly income and negotiates with the credit card companies to lower your interest rate.   Your creditors will still harass you and may still file a lawsuit against you.   Many of our clients have found that not all consolidators are trustworthy.

There are also legitimate companies that notify your creditors of their involvement in your case.  They take a monthly payment from you and save it.  Once they have saved up at least 50% of the balance owed on a particular card, they negotiate with the credit card company and pay them that amount in full satisfaction of the outstanding balance.  Then they move on to the next debt until all debts are paid.

With the settlement companies taking their fees off the top each month, you can see that it will take years before you can be debt-free.  In the meantime, you’re faced with  continued harassing phone calls and lawsuits.  If you enter into any of these debt settlement arrangements because you were told it will save your credit score, someone lied to you.  The credit card companies are going to continue to report your payment as being delinquent each month until the debt is paid and then they will report the portion that was not paid as being charged off.

Had you considered a Chapter 7 bankruptcy, your debt would have been wiped out within three to four months and your attorney’s fees would have been a whole lot less than the debt settlement company’s fees.   A Chapter 13 would have stopped all creditor action and put you on a more certain path, so before signing up with one of these companies compare bankruptcy as an option.

If you or someone you know is interested in finding answers to your financial problems, call us at 510 233-7700.  The attorney and staff of the Dowe Law Firm will get you on the path to financial stability.

For more information you can also visit us at

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