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Why Filing for Bankruptcy is a Better Choice than Credit Counseling

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Tobias Licker, Esq.
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Credit counseling most often involves consolidating outstanding debts as much as possible and then developing a negotiated repayment plan for a reduced payment over time to all of your creditors. Credit counseling is often a first step taken by those who have significant debt due to varying unforeseen circumstances.
Each creditor has a different idea of what should be in the repayment plan and therefore will have different requirements. The catch is that a repayment plan must be approved by all the creditors, which takes time.
What you may not know is that credit counselor staff is often working for the major credit card companies, in their best interests not yours. This is because the credit consolidation agencies get a cut of all the funds they recover that are owned to the creditor. You probably would not want to buy a house from a realtor that was listing the property and was representing the seller. So it follows that credit counselors are not working in your best interests. Debt Settlement Company This is a plain and simple conflict of interest on the part of the credit counseling agencies.
In addition, although you are working hard to try to preserve your credit rating by being responsible and developing a repayment plan, creditors will put a notice on your account that there is a repayment plan in place for your account. In reality this actually further damages your credit rating; hindering your situation rather than helping it.
Developing a workable repayment plan may be difficult.
A recent Consumer Federation of America and the National Consumer Law Center report has shown that there is approximately a seventy-five percent rate of failure in completing repayment plans. This means that there is a fairly high failure rate. Why start a process that may statistically not work?
Another common problem is that you may be working with a counseling agency for six months or longer and only then you find out that one of the creditors is unwilling to negotiate a repayment plan. In this case there are a couple of options, you can retain the services of a bankruptcy attorney to negotiate a payment term or to file bankruptcy or find another credit counselor.
Then there is the not all that uncommon practice by credit counselors of paying their fees first. The unwitting client pays their first consolidated bill only to find out they are even further in the hole because they first payment is going towards the agency fees and not their debt.
In summary, there are credit counselors out there that provide a valuable service. However, each person has to choose what is right for their own particular situation at the given moment in time.

(sk/tl 10.20.11)

Category: Bankruptcy

2 Comments to "Why Filing for Bankruptcy is a Better Choice than Credit Counseling"

Hopefully I can find someone to help me with credit counselling in Toronto. I'd definitely come to you guys, but you're quite a ways away. Thank you for sharing!
Posted by Simon Martin on March 6, 2013 at 06:25 PM
You are right that most debtors do not know that the "credit counselors" are really working for the creditors. And this is true even with so called "non-profit" credit counselors.

If debtors want a repayment plan, it is much better for them to come to you or another law firm and have it filed in a Chapter 13 bankruptcy. With a court involved, the creditors are locked in and cannot jerk the debtors around.
Posted by JD at Bankruptcy Information on November 6, 2011 at 08:15 PM

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