What is better when I am in debt, a debt settlement company or a bankruptcy attorney?

The answer to this question is easy.  A bankruptcy attorney is better than a debt settlement company and bankruptcy is almost always better than debt settlement if you wish to do it.  If you have debts but you don’t want to file bankruptcy for some reason then debt settlement through an attorney can be a good alternative.

I often settle debts for my clients who don’t wish to do a bankruptcy.  We look at the  client’s situation, evaluate the debts and the amounts owed, and we propose a settlement.  This settlement is forwarded to the creditors and in the settlement proposal we state that everyone must agree of my client will go bankrupt and the creditor will get nothing.

Creditors usually realize that bankruptcy attorneys will file a bankruptcy without a problem and they usually come around and agree to some type of settlement.  It does help though to have money to settle with as getting the creditors to accept payments is tough.  They want to settle the entire account if they are to take a reduced amount.  Remember that the collection agencies have bought this debt for pennies on the dollar so a definite reduced amount is far better than an uncertainty or nothing at all.

Debt settlement companies that say they specialize in settling debts (the ones that you see advertised constantly) are probably not a good option in my opinion.  These companies are very expensive, take a long time, and you get no legal protection.  My clients often pay thousands of dollars to these companies and sometimes they get few or none of their debts settled in the end.  (See my article on my website about debt settlement companies).

Clients come to me after having been sued by one of their creditors that was supposed to be taken care of in the settlements.  The client then often decides to go bankrupt anyway.  When we examine the contract the client signed with the debt settlement company we find that they are indeed paying thousands of dollars to have these people “settle” their debts.  The client then discovers that the settlement companies always put in their contracts that the companies don’t provide any legal protection if a creditor decides to sue.

And the creditors will sue.  These settlement companies work by charging you a large monthly fee which mostly goes to pay them in the beginning.  Then when you get done paying them they start putting money away for the creditors so they can offer them settlements one by one.  There is no assurance that the creditors will accept the settlement and the creditors who are last in line often sue anyway.

That is when we bankruptcy attorneys are called when it is too late to save you the money.  We can file the bankruptcy and get you out of the debts but if you had called us first we would have saved you the thousands you spent on the debt settlement company for nothing.

If you hire an attorney in the first place you would not only save money but by law the creditors would have to call us and not you.  Creditors are unlikely to sue once you engage an attorney because they know they must cease all contact with you by law and if they do file a lawsuit then we bankruptcy attorneys can immediately file your bankruptcy case and stop their lawsuit in its tracks.  The creditors would then lose all their filing fees and attorney fees and the underlying debt.

You can see that the creditors are thus very motivated to settle once a bankruptcy attorney enters the picture.  Call a bankruptcy attorney if you are thinking about settling your debts.  The attorney can file a bankruptcy or get you the best deal on a settlement probably far cheaper than a debt settlement company.

I am a San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com for more info. about any of these topics.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis! 

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

What can I do if I can’t file bankruptcy for some reason? That’s easy, we settle!

(See my update on whether to use a debt settlement company or a bankruptcy attorney).

Yes, we can settle your debts!  Usually at a steep discount over what is owed.  You may have already received letters from creditors offering these discounts if you have held this debt for some time.  If a bankruptcy attorney calls the creditor and explains that you may file bankruptcy then you might even get a better settlement offer.

If you can’t file bankruptcy that means usually that you have too much income or too much property to file.  If your debts are fairly low then you may want to use that property or income to settle them.  Some of my clients have gotten or are getting a large payout on a lawsuit or an inheritance of some kind and they then would have too much money to file.  We then call the creditors and offer settlements and they are happy to get their money usually at a deep discount.

This may not seem like an option for you but you would be surprised how often this happens.  If you have some money or if you are due for a big payout in the future then it does not make sense to file for bankruptcy.  If the trustee finds out then he can keep the case open until those funds come in.  He will then use those funds to pay the debts in full if each creditor files a proof of claim and they usually do.  Since you are bound by law to report to the trustee anything that could be considered property to the estate it just does not make sense to file bankruptcy in some circumstances.

Some people just don’t want to file for bankruptcy.  If this is the case then you can also settle your debts.  The creditors will be happy to get paid.  Settling is not as bad as you might think.  A bankruptcy attorney has more clout and the threat of filing bankruptcy to use as leverage to get you a better deal.  A bankruptcy attorney should offer this as a service for those who cannot file for bankruptcy.  After settling these debts will be reported as “settled” on your credit report and in time your credit score will rise as these debts will no longer be reported as delinquent.

I am a bankruptcy attorney practicing bankruptcy law in San Diego CA.  Please visit my websites if you have more questions at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Should I settle my debts with my creditors or file for bankruptcy?

(See my update on whether to use a debt settlement company or a bankruptcy attorney)

I have blogged about this issue in the past but I am often asked by my clients about the value of debt settlements.  It is a big decision you face when your debts have gotten out of hand so I decided to write about it again.

Settling debts is when you pay a percentage of your total debt owed to each creditor.  These settlements can run from 20% of the balance (if you are real lucky) all the way up to 80%.

You may have heard the ads where the debt settlement companies will say simple things like “don’t file for bankruptcy” or “don’t ruin your credit by filing bankruptcy”  But remember that there are often good reasons for filing bankruptcy if you are eligible to do so.  I believe that there are three main reasons why bankruptcy is better than debt settlement:

1) Credit score– The debt settlement companies emphasize the effect bankruptcy will have on your credit score.  They like to say not to “ruin” your credit.  It is true that your score will decline after you file for bankruptcy.  After your discharge your debts will be reported as “discharged in bankruptcy”.

What the debt settlement companies don’t tell you is that credit scores can be rebuilt.  I have written about this in another blog.  You will get credit card solicitations after you file.  You can use one or two of these to re-build your score.  In fact if you finance anything after the bankruptcy with monthly payments (and you make your payments on time) your credit score will improve.  The same applies if you reaffirm a debt in bankruptcy.

If you do any or all of these things your credit score will then begin to rise and you can re-build your score in two to three years. Your credit is not ruined forever after a bankruptcy.  Telling you that your credit will be ruined forever is just their way of selling you a debt settlement program.

2) You save money– With bankruptcy you don’t have to pay the debts back.  You can discharge these debts in bankruptcy which means that you won’t legally owe them anymore after the bankruptcy is over.  This will amount to a huge savings for you.  It is not unusual for my clients to have $20,000 or $30,000 in debt and some have more than $60,000.  Debtor’s with a business can have $200,000 or more in debt that they can discharge in their bankruptcy.

With a settlement company you will have to pay back a portion of your debt.  In my experience it is possible to get a settlement as low as 20% of the balance.  More often though creditors want 50% to 80% of the balance.  In other words you only get a 20% to 50% discount.  This is a tremendous amount of money to pay to creditors when you could fully get rid of these entire balances if you filed bankruptcy.

Debt settlement companies usually charge more for their services than do bankruptcy attorneys.  This is in addition to your debts.  Then they often charge a percentage of what they save you.  Needless to say this can all be very expensive for you.  A client of mine recently paid a debt settlement company almost $9000 and the debt settlement people did very little for them and they still have to file bankruptcy.

Had they seen a bankruptcy attorney first they could have saved all of this money.

3) You have legal protection– No creditor can attempt to collect a debt discharged in bankruptcy or they will be in violation of federal bankruptcy laws and they will face legal sanctions.  This is not so when a debt settlement company settles your debts.

In a debt settlement situation creditors can and will still sue you.  I have had several clients be sued when they were in the midst of a debt settlement.   The reason why this happens is because of the way they settle debts.  You pay them a set amount every month.  They allow this money to accumulate and then when the amount grows large enough they begin to settle debts one at a time.

But of you have 4 or 5 (or more) creditors then there are a few left for last.  These creditors are receiving no payments or settlements during this period and they get anxious.  Sometimes these restless creditors go ahead and sue.  When they do sue you and you call the settlement companies they will do nothing to help you.  This is my experience in talking with clients who went through this.

Therefore your credit will be better, you will save a lot of money, and you will be legally protected from creditor harassment and lawsuits if you file bankruptcy.

I am a bankruptcy attorney practicing in San Diego.  If you need further help please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Do debt settlement companies have some “new information that credit card companies don’t want you to know”?

No!  They don’t have any secret information.  They don’t have access to some new law and they are not working on your behalf.  I believe that they are in fact working for the credit card companies.  They are acting, in effect, as collection agents for the credit card companies and they collect your money to pay off these big banks which you owe money to.

What the don’t want you to know is that bankruptcy can discharge the full balance of all of your credit cards!

I don’t know if the debt settlement companies are owned and/or financed or controlled by the credit card companies or if the debt settlement companies are actually independent.  All we hear are rumors of control.  But it makes little difference to you as the debt settlement companies are operating as if they were collection agents for the credit card companies.

These debt settlement companies make good money settling your debts by charging you very high fees.  They often want an up front fee, a percentage of what they save you, and you still have to pay off the credit card companies a portion of your original debt.  Check out my earlier blogs to see how expensive this process can be.

Also you are not protected from a lawsuit if one of your credit card companies does not want to wait to get paid by this system.  A credit card company can easily sue you when you are in a debt settlement situation and you will have no protection if they do.  (If you are in bankruptcy they cannot sue you because of the automatic stay).

Remember though that there is no new information that these debt settlement companies have access to that credit card companies don’t want you to know.  The credit card companies in fact want you to settle with them for less than the full balance if you cannot pay them in full.  What they don’t want is for you to file bankruptcy and pay them nothing.

Bankruptcy is probably what you want and need though and information about bankruptcy is what the credit card companies really don’t want you to know.

I am a bankruptcy law practicing bankruptcy law in san diego.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call me for a free consultation on debt or bankruptcy.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.