In the words of J.D. Salinger, the following statement is “too important to be underlined”:
Debt settlement is a scam.
Take Walter White for example, who is a gentleman I just made up for the purposes of this hypothetical and who is in no way based on the character from the cable television super-smash, “Breaking Bad” on AMC.
Walter has $11,706 in credit card debt. He does not have the funds to pay it back so his two options are, generally:
- File bankruptcy and pay $0.00 towards the credit card debt; OR
- Pay a debt settlement company thousands of dollars to settle his $11,706 credit card debt.
In this example Walter is told by the debt settlement company that he can opt to pay according to one of the following schedules:
- $244 for 36 months;
- $209 for 42 months;
- $183 for 48 months.
Again, as a reminder, if Walter had filed bankruptcy he would have paid $0.00 and his chapter 7 case would be half over by now. But rather than examining his own needs and seeing the benefit of eliminating his crippling debt Walter decides not to file chapter 7 bankruptcy because he is worried that his mother-in-law will scold him for not paying back what he owes. The debt settlement company tells Walter how that if he had tried to pay back the $11,706 himself he would have paid a total of $16,351, which factors in approximately $4,715 in interest.
Walter decides to pay back $209 over 42 months, which is equal to $8,778. It is unknown whether Walter understands that during this “pay back” period his credit will continue to be ravaged with reports of delinquency that could have easily been avoided by filing for bankruptcy.
In the end Walter ended up paying approximately 75% of the principal of his debt of $11,706. The debt settlement company is under no obligation to disclose its fee and so it is possible that a larger portion of Walter’s plan payment actually went to the debt settlement company rather than the actual debt itself.
In the end Walter ended up with a terrible deal. Why? Because – all together now – debt settlement is a scam.
It is a fact that filing bankruptcy will wreck your credit in the short term. But it is also a fact that debt settlement will wreck your credit in the short term AND in the long term. The reasoning is as follows:
Generally speaking, bankruptcy not only stops all debt collection and but it stops all reporting of any pre-filing debt collection forever and always. This means that upon filing your credit score slowly begins to repair itself because your history of non-payment on the credit cards is wiped clean, never to be seen by a potential creditor, employer, landlord, ditch digger, etc.
With debt settlement nothing is wiped clean, your history of being ninety (90) days delinquent or one hundred and twenty (120) days delinquent or one hundred and eighty (180) days delinquent is still on your credit report and will remain there for years. The result of this is that your poor credit history will continue to burden you before, during and after your debt settlement plan is completed.
A good consumer bankruptcy attorney will work in your best interest because, among other reasons, we are bound to do so by the Massachusetts Rules of Professional Conduct. The debt settlement company has no such obligation to work in your best interest and in fact their business plan relies on them working directly adverse to your interests. The debt settlement company may not even be based in the United States, which means that it will be nearly impossible to hold them accountable for their treatment of your individual case.
You do not need another mountain to climb. Do it once and do it right.
Find a good consumer bankruptcy lawyer and file for chapter 7.