Debt Management Companies or Bankruptcy - Which Is Better?
Bankruptcy Attorneys: Belleville, IL | Glen Carbon, IL | Highland, IL
image of seesaw with good and choice

Debt Management Companies or Bankruptcy:Which is Better?

If you are able to give a debt management company a large lump sum, most of them will do what they say they will.  They will negotiate a lump sum payoff on credit cards at a discounted rate.

HOWEVER, most people don’t have a large lump sum of money, so they will need to make payments for many years to accumulate enough to enable the debt management company to negotiate for that discounted rate.  Meanwhile, you have no automatic stay (protection from creditors while in a bankruptcy), credit is usually wiped out by the time a person has saved up enough, and the abusive calls and letters and lawsuits continue. Interest too.

What’s worse, debt management companies make you pay large up-front fees, maintenance fees and management fees.  By the time most folks have made enough monthly payments to obtain a lump sum settlement, the additional interest, over limit fees, late fees, collection and court costs will have eaten up most of the savings.  Also, debt management companies don’t tell you (or it’s hidden in fine print) that the creditors will issue a IRS Form 1099-C for the forgiven debt, and the tax liability on that pretty much eats up the rest of any savings.

Individuals can negotiate the same deals.  Sometimes the companies that purchase debt will send out offers for a reduced, lump-sum balance.

Lastly, the majority of folks who sign up with debt management companies don’t finish the program, and most drop out before any lump sum payoff settlements are accomplished.  The end result is that these large fees are paid in return for absolutely nothing.

These debt management arrangements are not scams like we usually think of scams, but when the final results are considered, the amounts paid for less than what was promised causes great harm, frequently ending in a bankruptcy anyway. 

The benefits of a bankruptcy on the other hand, whether chapter 7 or chapter 13, include one major benefit that the debt management companies cannot obtain- interest on credit cards, personal loans and medical bills stops the minute the case is filed with the court.  Garnishments stop.  Lawsuits stop.  Phone calls and nasty collection letters stop (and if they don’t, your attorney can use legal proceedings to stop this abusive behavior).  There is instant breathing room and your attorney will be dealing with your creditors instead of you.

In Illinois, if you have had a vehicle repossessed, as long as you file a chapter 13 bankruptcy within 20 days, your attorney can get the vehicle back.  That’s the law in Illinois. 

If you have become behind on your mortgage payments and you are facing a foreclosure, your attorney can stop that also, as long as certain deadlines are not missed. 

It is important to note that most of the attorney’s fees in a chapter 13 bankruptcy are paid over time, so there is no need to come up with large sums of money to get the case started.

Now there are limitations on filing chapter 7 or chapter 13 bankruptcy, so it is crucial that you contact your attorney to discuss all of the legal issues that can arise in a bankruptcy.

Contact The Bankruptcy Center in Belleville, IL at 618-236-7000 or in Granite City, IL at 618-656-7941.