Are you so frustrated with mounting debts that you are considering a contract with a credit counseling company? Before you make that decision, bankruptcy lawyer (AZ) Lawrence ‘D’ Pew wants you to know 5 essential facts about credit counseling agencies and debt consolidation companies.
ONE. Not a penny of the money you pay a credit counseling agency goes toward reducing your debts until after they have collected their entire fee.
Do you understand how credit counseling companies make money from you? Bankruptcy lawyer (AZ) Lawrence ‘D’ Pew believes you have the right to know how these debt consolidation agencies operate at an exorbitant cost to consumers. After you have paid the agency its $5,000 to $9,000 fee, you will be instructed to set aside more money into an account. When you have struggled to accumulate several thousand dollars more, the agency eventually contacts your creditors to negotiate a debt settlement for less than what you actually owe. If successful, you will be instructed to repeat the process until every creditor has been approached.
Keep in mind that, unlike a bankruptcy lawyer, AZ credit counseling agencies have no special legal authority to negotiate with your creditors. When there is no federal law requiring that your creditors negotiate with your debt counseling company, why would they?
TWO. While you agree to refrain from making payments on your debts, the debt consolidators redirect your money to pay their fees.
Did you know that you will be instructed to stop payment to creditors and pay the debt consolidation company instead? A bankruptcy lawyer (AZ) will tell you that these credit counseling agencies are redirecting your money into their pockets. If you were having problems with your creditors before, once you stop making any payments you will have more headaches to deal with. While you dutifully make payments to the debt consolidation company, they apply the full amount to their fee. Your creditors, then, get nothing. Your financial situation has not improved at all and, quite frankly, the debt consolidator has made it much worse.
THREE. Not making your car payments will likely result in the repossession of the vehicle.
Do you believe your car loan can go unpaid for any length of time without the lender repossessing it? While you work at making payments to the credit counseling agency to cover its excessive fee, your creditors are going unpaid. As bankruptcy lawyer (AZ) Lawrence ‘D’ Pew will tell you, a creditor will not sit idle while the loan continues in default. This situation represents a major defect in the strategy used by debt settlement companies. When you stop making payments on your vehicle, it is likely to be repossessed before you can amass sufficient cash reserves to even begin negotiating with the lender. Most people cannot afford to lose their transportation to and from work, so this arrangement can lead to disastrous financial results for the debtor.
FOUR. A debt consolidation company does nothing to stop garnishments, liens, lawsuits, and relentless collection efforts by creditors.
Do you understand that a credit counseling agency can take no action to stop creditor lawsuits and collections? Your bankruptcy lawyer (AZ) will tell you that filing for Chapter 7, Chapter 11, or Chapter 13 always stops creditor lawsuits and collection efforts through the automatic stay. But when you hire a debt consolidation company, the harassing phone calls will continue, along with the demanding letters. You may still lose your home to foreclosure or your vehicle to repossession. Essentially, nothing has changed to improve your financial life and it is costing you more to make a bad situation worse.
FIVE. Debt consolidators and credit counseling agencies do not necessarily have your best interests at heart.
Did you know that credit counseling companies frequently work on behalf of the credit card companies? Lawrence ‘D’ Pew, Arizona bankruptcy lawyer, explains the harsh reality to consumer debtors. Because these operations frequently work on behalf of credit card companies, they operate against their clients’ financial interests. The credit counseling agency working for the benefit of credit card companies has one goal – to pull as much money from you as is possible before you file for bankruptcy and make the bleeding stop. In fact, the federal government has had to close some of these credit counseling operations down because they were actually owned by the credit card companies.
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