Texas residents who run into financial trouble will undoubtedly stop and consider the services offered by companies that promote themselves as being skilled with debt relief. There are a litany of these businesses and they use heavy advertising tactics, making promises that are difficult to believe to be true. These companies say they can help with the debt through renegotiation, settlement or by altering the terms of the agreement between debtor and creditor. Understanding how debt relief or debt settlement companies function is important before taking this step over personal bankruptcy.
Debt relief companies will often be expensive to the debtor. Even if they are successful in reducing the debt owed to creditors, there will then be another debt that must be paid. This is not the case when filing for bankruptcy. These companies will generally advise the debtor to stop making payments on credit cards. This leads to late fees, interest and more. The creditors will likely become more aggressive in their attempts to collect on the debts. Creditors are not obligated to negotiate with these companies. This contrasts with the legal action and protections that accompany personal bankruptcy.
The debt settlement company might not be able to clear all the debts. Debt settlement companies will often tell the debtor to place money into a dedicated bank account. This will be managed by a third party and fees might accompany it. Since a debt settlement strategy is a negotiating tactic and not personal bankruptcy, the creditors will have the right to file a debt collection lawsuit. Unless the company settles the debts, the accumulated fees and penalties can deplete the debtor’s bank accounts and assets. Finally, trying debt settlement strategies in lieu of bankruptcy will severely damage the debtor’s credit score.
While it might seem to be an attractive alternative to bankruptcy, debt relief is a risky proposition that can cause more problems than it is worth. Those who are experiencing financial challenges might be frightened or intimidated by the prospect of personal bankruptcy. In order to understand how debt settlement companies work and the benefits of filing for bankruptcy, it can be wise to speak to a legal professional experienced in helping clients get a fresh start before trying debt settlement tactics that could cause more problems in the long run.
Source: consumerfinance.gov, “What are debt settlement/debt relief services and should I use them?,” accessed on Feb. 28, 2017