As bankruptcy and debt relief attorneys, our advice is to stay away from Credit Counseling and/or Debt Settlement companies.
Just a note to everyone out there that is looking into the Debt Settlement/Credit Counseling route. Stay away as best you can. These companies are nothing but scams to take your money. The Filing of a bankruptcy case is always going to be the best option. I have seen it a countless number of times when a client come into my office. They are just throwing their money away.
Personally, I have not seem too many in Southfield, Michigan. However, I have seen many of these companies based in the Metro Detroit Area. So, be wary as they will tell you exactly what you want to hear. They will tell you that they can repair your credit and even get you a monthly payment plan that would be as low as 10-15% of your total debt. They will promise you the world but let’s review how these companies really work and how they are much worse for your credit than filing a petition for Bankruptcy.
Credit Counseling Companies:
These companies are actually quite interesting. They are essentially just a go between for you and your credit card companies. You see, every credit card company has an “emergency” plan that they will offer their card holders. If you are unable to make your payments, they will put you on an emergency plan payment. They will take your balance and you will pay that back for however many months you need to pay it off and usually at over 15-20% interest. All these companies do is act as facilitator for this payment. You will pay them, and then they pay the credit card company. They charge at least a $50 fee each month for each card and do nothing else for you. Your credit report will also be hit each month with a negative annotation on it because you are in the midst of this payment plan.
You can compare that to a Chapter 13 Bankruptcy, where you only pay back what you can afford to pay back. All of your creditors will get paid out of this payment. Your payment plan in a Chapter 13 Bankruptcy will be anywhere from 3-5 years while the credit counseling payment will almost always last over 5 years for each account included.
Most of these companies in Metro Detroit and Michigan in general have gone out of business or been shut down. However, some are still active so be careful.
Debt-Settlement Companies:
These companies are even worse for your wallet and your credit. A company will tell you that they can settle your debt for you and put you on a low monthly payment plan. However, they don’t do much for you either. They put your monthly payment in a trust account in their name; they take up to 15-20% of your total debt as a fee right up front. If there’s anything else left over to settle with your creditors, they will use it. If not, you still have to come out of pocket for more money. You could have done this yourself. Since they don’t communicate with your creditors, you will continue to get harassing phone calls from them. On top of that, your credit continues to take a hit. Your accounts will continue to state late entries on the credit report. All they do is check the box for you when the settlement offer comes in from the credit card company. Do you really want to pay a company all that money just to check yes to a settlement offer? Probably not.
Even if you are able to settle some your debts, you will be taxed on any amounts forgiven. Many of our bankruptcy clients seek Federal and State of Michigan income tax liabilities from these settled accounts. These recent taxes are not discharged and they still have other debts to make bankruptcy necessary.
Hiring a bankruptcy attorney will solve all these issues. Your creditors will no longer be able to harass you according to the Michigan and Federal Fair Debt Collection Practices Acts and you will not have to pay your creditors if you file the Chapter 7 Bankruptcy Worst case, you file a Chapter 13 Bankruptcy and only pay back what you can afford to pay back. Both of these options will also be better for your credit. You will afford yourself the opportunity to rebuild your credit sooner rather than later.
Don’t subject yourself to these scams. You should call a bankruptcy attorney immediately to see how they can help!
