Early in my practice, I’d see 65-70% of my clients tried some form or debt management, and it didn’t work. Initially I thought, “Wow, if this is something that really works, why not have a debt management company in addition to a bankruptcy law practice?” There are a number of reasons why debt management doesn’t work. To me, the most critical reason is that debt management carries no guarantees you will be able to successfully settle what you owe and get out of debt. With bankruptcy, I file a bankruptcy for you, I can guarantee that it will stop the credit collections, period, end of discussion. You will not be sued, the balances on your debts will not go up once a bankruptcy is filed.
If you enter into some sort of contract with a debt settlement company and they say, “We worked out something with each one of your creditors.” Well, check the fine print, it is not guaranteed. Then you start making a payment to them. It’s the payment you were already making… it’s practically what you were paying in minimums to your credit card company. It’s going into some holding account, those companies are going to take 15, 20, 25% of the balance on your debts in fees. They’re sneaky with how they do it because they’ll do it as a monthly service charge, which is nonsense. $195-200, whatever it is.
At the same time, there are different ways they do it. Sometimes they’ll wait eight months, they’ll take all these fees up front, you pay them $8,000, you can’t get it back. Two, they’ll start settling your debts. They’ll settle the little ones. Did you care about your Gap card that had a $500 balance on it? They’ll settle that one. The big ones don’t get settled, then the creditor then sues you.