If you’ve spoken to one of the so-called Debt or Loan Modification companies, you might be wondering what exactly they do and whether they can really help you avoid having to file bankruptcy. The short answer is maybe. The better answer is buyer beware!
What’s behind their pitch? They’ll offer to work out a deal on your behalf with your creditors where you’ll pay X amount of dollars over Y number of years. You won’t file bankruptcy, or go to court, and you’ll supposedly save the money you would have paid to the U.S. Trustee’s office to administer your case.
Sounds great, right?
Well, a few things to consider.
1. There are no state regulations dictating the qualifications or training or duties of debt modification companies. It could be an attorney that you speak to, it could be a former real estate agent who’s looking for work in light of the real estate bust, or it could be someone who answered the sign tacked to the street sign looking for “eager salespeople.”
2. These companies make money by charging you fees, but cannot offer you the advice of a licensed attorney OR the protection of the automatic stay (two words that ALWAYS get the attention of creditors).
3. Debt management companies make money by charging fees based on a percent of how much they can collect from you from your creditors. That means they are in the business of making money off your debt-load NOT advocating on your behalf. Many filers report that their credit card companies refer them to debt management companies. hmmmm…. I wonder if there might be a reason why your credit card company wants you to call a debt management company rather than encouraging you to call an attorney to discuss the possibility of filing bankruptcy to protect yourself.
I wrote possibly filing bankruptcy because your attorney will evaluate the facts of your situation and counsel you about your options. It may not make sense to file because you are judgmennt proof (infrequently) or for some other reason that your attorney will think of because he or she is your advocate–rather than a servant of your plastic.
4. Attorneys are regulated by your state and are obligated by the state bar to serve clients. You–the client–have the power to regulate attorneys’ behavior by complaining to the bar and/or filing a civil suit for gross negligence. Who ya gonna call when your debt management company flies by night?
5. In many cases, you don’t need a debt management company–or an attorney–to modify the terms of your credit card agreements. You need courage and conviction and an even temper with the 800 number. Google “how to negotiate with your credit card company” for ideas.
6. Depending on the outcome of the bankruptcy legistation currently pending in the US Senate (having passed the House) bankruptcy judges may be able to modify the terms of your mortgage in a Chapter 13 bankruptcy. If this happens, watch out–big credit! Bankruptcy Filers of the world will indeed unite and take over.