3. Advice About “Quick and Easy” Solutions

A. Debt “Settlement/Negotiation, or Elimination” Services

Numerous companies offer services such as debt settlement/negotiation or debt elimination. Consumers should be wary of any company that promises something that seems to be too good to be true, and should be cautious in agreeing to any service that requires fees to be paid up front. Some companies offering such services can actually worsen your financial situation.

Debt “Settlement/Negotiation”

Debt settlement/negotiation companies promise they will negotiate with consumers' creditors to reduce the amount owed…in most cases for an upfront fee.

As a general rule, debt settlement/negotiation should be considered only as a “last resort” before filing bankruptcy.

Many consumers complain that debt settlement/negotiation companies take their money but don't deliver promised results.

Consumers may be liable for late fees and penalties that accrue while payments are not being made during the debt settlement/negotiation process, and may be sued with respect to any debts owed. Also, failure to pay debts during debt settlement/negotiation will likely have an adverse effect on the consumer’s credit report.

Debt “Elimination”

Companies that advertise debt elimination rely on many different schemes that all hinge on the incorrect notion that credit lines are illegal. Debt elimination companies typically provide, for an upfront fee, a document for the lender that supposedly absolves the consumer of the debt. The document generally has no validity whatsoever. Consumers paying for such “services” have found they've wasted money that would have been better spent on actually paying back their debts.

B. Other Loan and Balance Payment Scenarios

Collections

Collection agencies are separate companies that are used by creditors to collect a delinquent debt. The agency may be collecting the debt on behalf of a creditor, or they may have purchased the debt and are now attempting to collect the debt directly.

Collection agencies will contact you frequently until you either pay the debt, or make payment arrangements. Having an account in collections may appear on your credit report and may negatively impact your credit rating.

If you have an account in collections, communicate with the collection agency. Putting off debt collectors will not make the problem go away. When you receive a collection call, see if they are able to work with you on a payment plan.

Consumers can stop communications from debt collection agencies if the consumer notifies the agency in writing to stop. Federal law requires that debt collection agencies honor such written requests.

Short-term Loans

• Payday loans. Often referred to as “quick cash” or “check cash” loans, payday loans are easy to obtain because no credit check is required. Caution: They carry steep interest rates, and consumers may find they are trapped in a cycle of debt if they cannot pay back the loan by their next payday. Many states have banned payday loans or limited the interest that can be charged, and federal law limits the interest that can be charged by payday lenders to military service members and their dependents.

  An FTC alert on payday loans can be found at http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt060.shtm.

• Car Title Loans. You offer your car as security when you apply for a car title loan. You must provide your car title and a set of car keys to the lender, who holds them until the loan is repaid. Caution: Like payday loans, car title loans carry a high interest rate, can trap you in a cycle of debt, and you risk losing your automobile if you fail to pay.

• Pawnshops. Pawnbrokers take a consumer's possession (a piece of jewelry, for example) as collateral for a loan that usually carries a high interest rate. Caution: If you do not repay the loan with interest by a certain date, the pawnbroker can sell your possession.

Bankruptcy

Bankruptcy is a legal procedure that permits an individual (or business) to obtain relief from most or all of their unsecured debts. It enables people to seek a solution to their financial problems through the federal court. Bankruptcy is typically viewed as a “last resort” when other options to solve financial problems have failed, and there is impending financial disaster…such as losing a home to foreclosure, losing an automobile to repossession, or wage garnishment.

• Chapter 7 (liquidation).Allows you to eliminate most, if not all, of your unsecured debt. This may include medical bills, credit card debt, unsecured loans, utility payments, etc. Any property of value may be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly your house, depending on the law of the state where you live. Chapter 7 is typically filed by people who have few assets, little income, and a heavy burden of debt.
• Chapter 13 (debt adjustment). Reorganizes your debt into an affordable payment plan. A trustee is appointed and will collect the payments from you, pay your creditors and make sure you abide by the terms of your repayment plan. Your bankruptcy is not complete until you pay off all your creditors according to the terms of the plan. You are usually able to keep your property, but you must earn wages or have some other source of regular income and agree to pay part of your income to your creditors. This plan allows you to catch up on past due auto or home loan payments and temporarily halts foreclosures and collection actions. It can also help you pay off past due taxes, child support and loans.

Steps to take when considering bankruptcy

• Review the potential benefits. Bankruptcy can provide legal protection from creditors and take care of all or much of your debt.
• Know the consequences. There are no guarantees that bankruptcy will cure all of your financial problems.
• There are certain debts that cannot be wiped out by bankruptcy. A bankruptcy filing may also have a significant negative impact on your credit rating, which could have implications for housing, employment, and obtaining future credit.
• Seek assistance from a professional. Consult an experienced bankruptcy attorney to review your options.