Bankruptcy vs. Debt Consolidation

Op-Ed Written by Richard J. Oulton, Esq.

Bankruptcy is the only true legal remedy for unmanageable debt, and it has been so, based on and rooted in the U.S. Constitution.

Unfortunately, due to the ever-growing unmanageable debt problem, it has recently created a massive and competitive multimillion-dollar industry. 

Millions of dollars are paid to these debt consolidation / management companies by often misdirected or misinformed debtors.  Your payments more often than not will go to paying these debt consolidation / management companies’ fees, with barely any of your payments going to the actual creditors.

If you don’t pay the bill collectors / creditors as per your contract terms, then consequentially, this may ruin your credit score and they may garnish your wages, obtain a judgment or lien against you, repossess your vehicle, foreclose on your house, evict you from your rental place, or send harassing letters and phone calls to you.

The reality is that debt consolidation / management companies have no legal basis to reduce or force a settlement of your debt. 

In my 50 years of experience as a licensed attorney, I have found that creditors generally will not reduce the interest / debt or settle the account, and debt consolidation / management services seldom work except for very small amounts.

Debt consolidation / management companies merely search local records, and then will try to “hard-sell” the idea of reducing the interest / debt or settling the account with the creditors.  They will often quote minimum “teaser payments,” implying that it’s been pre-approved; however, soon thereafter, they repeatedly demand an increase in payments, claiming that they are needed for non-agreeing bills collectors / creditors.

Debt consolidation / management companies generally are not law firms, and thus they cannot provide legal advice or representation as it may be considered the unauthorized practice of law.

Debt consolidation / management companies misleadingly tell clients that they have many lawyers all over the country that can help deal with bill collectors / creditors.  However, they are careful to make no specific promises to hire and pay for an attorney to represent or defend you against bill collectors / creditors. 

Most of the time, they will recommend you search online to find a local Bankruptcy attorney for you to hire and pay at your own expense, because they typically do not have access to the Bankruptcy Court themselves and cannot file Chapter 7 or Chapter 13 Bankruptcy for you.  Thereafter, they usually close your account at the debt consolidation / management company, and they may (but most likely will not) provide a small partial refund of payments you have made to them.

Are you getting sued even when you are enrolled in a debt consolidation / management program?

Debt consolidation / management companies have no more power than your neighbor calling your creditors on your behalf.  Since debt consolidation / management companies have no real legal authority, bill collectors / creditors may continue to garnish your wages, obtain a judgment or lien against you, repossess your vehicle, foreclose on your house, evict you from your rental place, or send harassing letters and phone calls to you.

These harmful actions may continue to happen until you either pay the debt in full, or file for Chapter 7 or Chapter 13 Bankruptcy.

Will filing for Bankruptcy solve these problems, and how does it work?

Yes, Bankruptcy can solve these problems because when you file for Bankruptcy, the “Automatic Stay” under 11 U.S.C. Section 362 is applied and enforced. 

In other words, when you file for Bankruptcy, bill collectors / creditors must legally stop debt collection, garnishments, judgments or liens, repossession, foreclosure, eviction, and must stop sending harassing letters and phone calls to you.

Thus, the best answer to alleviate unmanageable debt and for you to get a fresh start is to file for Chapter 7 or Chapter 13 Bankruptcy.  We can help you do so at America Law Group.  Do not hesitate to call us today.

For more information from the United States Bankruptcy Court website, go to the following link: https://www.uscourts.gov/services-forms/bankruptcy