Some consumers never file bankruptcy when they should have a long time ago. Others let the credit hounds get to them and look to bankruptcy before they are really “ripe.” For those consumers in the middle, consumers realize that either debt consolidation or bankruptcy may be the right choice form them. It used to be that the only way to consolidate debt was to get a new loan to pay off old debt. If you are already struggling with the debt you have, then you should realize that you just can't borrow yourself out of debt. 

These days, many consumers turn to Debt consolidation companies to attempt to settle their debt for less than the full balance. The Better Business Bureau has discovered that many debt consolidation companies are scams. See the Better Business Bureau News release titled: NEW FTC REGULATIONS PROTECT CONSUMERS FROM DEBT RELIEF COMPANIES. Contact your local Better Business Bureau for more information. You will see from this News Release that there have been over 2,600 complaints to the BBB regarding Debt Relief Companies. 

Our take on it is this: There are debt relief companies that are scams and there are Debt relief companies that are legitimate. How can you tell the difference? You can't. But you can talk to your local BBB to see if the one you are talking to has had complaints. There seems to be no more fertile ground than for shysters to break into the debt consolidation business and promise consumers what they want to hear most. In this poor economic climate, it is just so easy for a con artist to take advantage. The real problem is that even the legitimate debt relief companies can't offer the protection that bankruptcy can. What usually happens with the legitimate debt consolidation companies (let's just call them “The Company”) is this: The consumer lets the Company attempt to settle their debt for less than the full balance. If the consumer stays in the program long enough and has paid in enough, the Company will settle one account of the Debtor. When this happens the consumer will get 1099 for the balance from the creditor and will have to pay tax on the amount of the debt forgiven (if the amount is forgiven is more than $600.) By this time the other creditors have become impatient and one or more will sue the consumer and get a judgment in Court. Once the consumer has a judgment against them, the creditor will garnish wages and do other unpleasant things (see our section on Lawsuits.) I haven't even mentioned yet that there always seems to be at least one of the Debtor's creditors who won't even participate in the Company's program. After all, this happens, the consumer wonders why they tried to do this at all and comes to their senses and files for bankruptcy. Hopefully, you will see the futility of this process before you begin it and find out more about bankruptcy. 

This advice is given as of the date of publication, is intended for consumers filing in the Eastern District of Missouri (in the following counties: Crawford, Dent, Franklin, Gasconade, Iron, Jefferson, Lincoln, Maries, Phelps, St. Charles, St. Francois, St. Louis City, St. Louis County, Ste. Genevieve, Warren, and Washington Counties) and is subject to change by your friendly neighborhood Congressmen or Congresswomen at any time.