A Matteson bankruptcy attorney cautions against using a consolidation company?A lot of people come into a consultation and wonder what the difference is between hiring a consolidation company to negotiate with creditors and filing a bankruptcy. This is a good question and the difference being that bankruptcy is not a negotiation with creditors. Bankruptcy is law that allows a person to completely eliminate debt and completely eliminate the stress that comes with your debt.
When a person goes into a consolidation company and asks them to negotiate upon their behalf for their creditors, they are really rolling the dice with your chances of negotiating successfully with a creditor. The reason being is that creditors do not have to negotiate any of their claims for debt with a debtor. In essence, the power of negotiation for the credits and the debt amounts is really in the hands of the creditor. Often times, a consolidation company will be able to negotiate with a few of the creditors that a person may have but almost in all of the cases that consolidation companies have, will never be able to negotiate with all of the creditors that a person may have. If a person hired a bankruptcy lawyer in Chicago, he would not have to worry about these creditors.
So a person believes that they are paying back their debts through the consolidation company but they don’t realize that not all of the creditors are being paid back or not all of the creditors have even been contacted for any negotiation process. So once somebody finishes up with the consolidation company and they believe that they are debt free, two or three years down the road a creditor will pop up and say they never got paid through the consolidation company and that they are going to sue. At this point, the person may wish to find a bankruptcy lawyer. Now you have lost about two or three years and that debt that was originally maybe $1000 two or three years down the road with interest could easily be double, depending on the interest, the attorney’s fees, the court costs, all of these different things that the creditor can tack on to the debt of a person. And they will ask for the full amount.
The difference with this and filing bankruptcy again is that bankruptcy is not a negotiation. If you file and qualify for an individual bankruptcy case under Chapter 7, there is no negotiation by the creditors and the power is on the debtor’s side.
People may ask what the differences between a consolidation company and also a Chapter 13 bankruptcy. The difference again is that a Chapter 13 bankruptcy is not a negotiation with your creditors. The Chapter 13 is going to be a repayment plan to your creditors; however, the repayment plan will be negotiated with the trustee of the case as well as the judge in bankruptcy. So the creditors in a Chapter 13 have to either accept the terms and conditions of the Chapter 13 bankruptcy or not get paid at all for the debt that was incurred by the debtor.
So a consolidation company is not a great way to get out of your debt. The only real way to get out of your debt is to file a Chapter 7 or a Chapter 13 bankruptcy instead for the reasons that were mentioned previously. The biggest thing to get out of this is a consolidation company cannot fully negotiate with all of your creditors. They can try to however, the creditors do not have to negotiate with the consolidation company and most of the times, and they do not negotiate anyways. Sometimes a consolidation company will ask for $7000-$8000 up front just to start working on your consolidation with your creditors. If you file Chapter 13 bankruptcy, then it is going to be much lower and less expensive than that $7000-$8000.
So those are the differences between a consolidation company and filing bankruptcy. And after taking into consideration the difference, pros and cons of both bankruptcy will definitely be the better option.