Avoiding Debt Consolidation Scams

Denver Debt Consolidation Scam Attorneys

Colorado Debt Elimination Lawyer

If you've ever heard an ad on television or radio for a debt consolidation company you might think your financial worries over: all you have to do is use a debt consolidation company to negotiate a lower interest rate and monthly payment for you on your credit cards, right? Despite the enticing claims made on the part of debt consolidations companies, the reality is they don't have legal standing to force creditors to lower their interest rate or your minimum monthly payment, let alone discharge your debt. In fact, most debt consolidation companies charge "negotiation" or "administrative" fees that are paid in the first four to six months of their services -- fees that are collected before any of your principle is paid down on what your owe credit card companies. In most cases, these fees are equal to 15% of the debt owed.

Why in the first few months? Because most realize a large majority of their customers won't complete the debt consolidation program offered, making it important for them to fleece you before you file for bankruptcy or quit the program.

Don't Debt Consolidation Companies Negotiate Lower Interest Rates?

Some debt consolidation companies buy information from credit card companies that allow them to know from the start what amount of money a credit card company is willing to settle a debt for. As a result, negotiation may never actually take place: the debt consolidation company may approach your credit card companies already aware of the lowest interest rate they'll offer. Since debt consolidation companies don't have the power needed to force credit card companies to lower their interest rates, the credit card company sets the terms -- not the debt consolidation company.

Don't I just have to make a Single Monthly Payment to the Company?

Some debt settlement companies will ask you to cancel all your credit cards or set up an escrow account and make monthly payments to them through the account. Shadier debt settlement companies actually use the escrow account to pay your credit card companies' monthly fees or the minimum amount due, milking you for as much money as they can until you have enough money in the escrow account to leverage a debt settlement with a credit card company. However, by the time you've accumulated enough money to allow your debt settlement company to convince a creditor to accept a debt settlement, you could have hired an attorney and save thousands of dollars through bankruptcy.

Why is Bankruptcy Preferable to Debt Settlement Services?

In general, bankruptcy is cheaper and more effective than using a debt settlement company for the following reasons:

1. First, if you file for Chapter 7 bankruptcy, your credit card debt will be wiped out -- something a debt consolidation company cannot do. If you file for Chapter 13, you create a repayment plan over a three to five year period, committing all of your income over your basic monthly expenses. After a judge approves your plan, your creditors must comply with it. If you comply with the plan any remaining debt after its completion will be discharged as well.

2. Second, once you file for bankruptcy, a stay of relief is put in place requiring your creditors to stop all collection or foreclosure actions against you. As a result, creditors and collection agencies are required to talk to your attorney and stop contacting you directly. A debt settlement company can't stop the calls and stern warning letters. In fact, once a creditor realizes you are working with a debt settlement company, your account may be escalated, resulting in legal action against you.

3. Third, there may be tax consequences as a result of a debt settlement. Any balance that is forgiven in excess of $600 may be taxable. This could result in hundred if not thousands of dollars in additional tax, depending on how the amount of debt forgiven.

Contact Denver Bankruptcy Attorneys at Mile High Bankruptcy, PC, Today

Most debt settlement agents are paid a commission. As a result, they have a financial incentive in getting you to sign up for their "services." Save money and avoid additional legal problems - contact Denver, Colorado bankruptcy attorneys at Mile High Bankruptcy, PC, today to schedule a free consultation and learn how we can help you.

Avoiding Debt Elimination and Consolidation Scams

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