A Financial Fresh Start ?

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    Nov 24, 2012
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As a consumer bankruptcy lawyer for the past thirty years, probably the foremost question asked by hundreds of clients is how can I manage my debt and get back my credit rating. Of course, clients come to me with a thought of bankruptcy somewhere in the back of their minds, but they also have questions if bankruptcy is the only available route that they can take to manage their debt, get back their credit rating, and thus, obtain a financial fresh start. Inevitably the subject of debt or credit management companies comes up and the alternative of using one of these companies instead of filing bankruptcy.

Most of these debt management companies are private companies for profit. The client hires them as a go-between or intermediary to negotiate a pay down of their debt. By the way, these companies only deal with unsecured debt such as credit card and medical bill debt. They do not negotiate secured debt with creditors such as mortgage loans or car loan debt. And, of course, they do not negotiate with taxing authorities regarding tax debt as recent tax debt to the client must be paid, there is no negotiation.

Generally, the debt management companies charge an initial retainer and take a fee based on a percentage of the total debt negotiated which may be as much as 15%. The repayment program is then calculated for five years, 60 months. A monthly payment is calculated which includes the aforementioned fees and the company’s calculation of what monies the creditors would accept in full payment of the debts. The repayment plans are expensive and only work if the client has the income and property to participate. For the greater part of the first year of payments, the company takes its fees (the majority of the monthly repayment), what remains of the monthly repayment is placed in escrow. The company does not begin negotiation with the creditors until they have a sufficient balance in escrow to make a settlement payment.

During this period, there is no guarantee that a creditor would not sue the client on the debt. This is particularly true of aggressive creditors such as Citibank and Bank of America. Most of these repayment plans are like a house of cards. After one creditor sues, the plan tends to fall apart. In reviewing a debt management company’s performance in Kansas (a national firm with branches throughout the county), the Kansas Court noted that of 681 Kansas residents enrolled in a debt settlement program, 320 participants terminated within six months and 465 participants dropped out of the program within one year. Hardly success stories for programs of private debt management.

Over the years, two clients, irate over their debt management company experiences come to mind. Client One had been in a debt management payment program for several years with sizeable monthly payments, having paid in thousands of dollars to her creditors. She complained that after all these payments, the balances still owed to her creditors had hardly diminished. When Client Two came in for an interview, he was very irate. He had been making payments to a debt management company for five years. He had applied for a car loan and was denied. During the past five years, he thought he was doing the right thing by paying back his debt and thereby re-establishing his credit. He was definitely paying back his debt, but at the same time, he was destroying his credit rating. The creditors that he was paying back reported to the various credit bureaus that he was in a debt repayment program and thus, during this period his credit rating was being trashed.

Financial fresh start?....not by debt management companies.

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The author has an immense knowledge on Dayton Ohio Bankruptcy Attorney. Know more about Dayton Bankruptcy Attorney, Dayton Bankruptcy related info in his website http://hwampler3law.com

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