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A large amount of the companies in this industry are far from legitimate.
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3. Bankruptcy
DEBT NEGOTIATION / DEBT SETTLEMENT
CREDIT COUNSELING
BANKRUPTCY
Credit counseling is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.
In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly. An antitrust lawsuit was filed against the NFCC, arguing that the presence of creditors on the NFCC’s Board of Directors constituted monopolistic practices. As a result of this litigation, creditors agreed to fund non-NFCC member agencies as well.
These sharp increases of credit counseling activity also created other, more serious issues in the industry. By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors. This fee income, known as “Fair Share,” are contributions from the creditors that originally earned the agency 15% of the amount recovered. However, in recent years, Fair Share contributions have dwindled steadily, with contributions of 4-10% being the most common.
Still the NFCC considers bankcard companies to be one of their primary "constituents," and the NFCC website promotes the fact that they collect $5 billion for creditors each year. It also promotes their efforts to steer consumers away from bankruptcy.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency. The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies. Those 30 credit counseling agencies account for more than half of the industry's revenue. Audits of non-profit credit counseling agencies by the IRS are ongoing.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.
In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly. An antitrust lawsuit was filed against the NFCC, arguing that the presence of creditors on the NFCC’s Board of Directors constituted monopolistic practices. As a result of this litigation, creditors agreed to fund non-NFCC member agencies as well.
These sharp increases of credit counseling activity also created other, more serious issues in the industry. By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors. This fee income, known as “Fair Share,” are contributions from the creditors that originally earned the agency 15% of the amount recovered. However, in recent years, Fair Share contributions have dwindled steadily, with contributions of 4-10% being the most common.
Still the NFCC considers bankcard companies to be one of their primary "constituents," and the NFCC website promotes the fact that they collect $5 billion for creditors each year. It also promotes their efforts to steer consumers away from bankruptcy.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency. The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies. Those 30 credit counseling agencies account for more than half of the industry's revenue. Audits of non-profit credit counseling agencies by the IRS are ongoing.
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Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. Creditors may file a bankruptcy petition against a debtor ("involuntary bankruptcy") in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor
(a "voluntary bankruptcy" that is filed by the bankrupt individual or organization).
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 ("BAPCPA"), substantially amended the Bankruptcy Code. Many provisions of BAPCPA were forcefully advocated by consumer lenders and were just as forcefully opposed by many consumer advocates, bankruptcy academics, bankruptcy judges, and bankruptcy lawyers. The enactment of BAPCPA followed nearly eight years of debate in Congress.
Most of the law's provisions became effective on October 17, 2005. Upon signing the bill, President Bush stated:
Under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts. Those who fall behind their state's median income will not be required to pay back their debts. The new law will also make it more difficult for serial filers to abuse the most generous bankruptcy protections. Debtors seeking to erase all debts will now have to wait eight years from their last bankruptcy before they can file again. The law will also allow us to clamp down on bankruptcy mills that make their money by advising abusers on how to game the system.
Among its many changes to consumer bankruptcy law, BAPCPA enacted a "means test", which was intended to make it more difficult for a significant number of financially distressed individual debtors whose debts are primarily consumer debts to qualify for relief under Chapter 7 of the Bankruptcy Code. Contrary to this intention, however, the Means Test often results in debtors more easily obtaining a discharge. If a debtor does not qualify for relief under Chapter 7 of the Bankruptcy Code, either because of the Means Test or because Chapter 7 does not provide a permanent solution to delinquent payments for secured debts, such as mortgages or vehicle loans, the debtor may still seek relief under Chapter 13 of the Code. A Chapter 13 plan often does not require repayment to general unsecured debts, such as credit cards or medical bills.
BAPCPA also requires individuals seeking bankruptcy relief to undertake credit counseling with approved counseling agencies prior to filing a bankruptcy petition and to undertake education in personal financial management from approved agencies prior to being granted a discharge of debts under either Chapter 7 or Chapter 13. Some studies of the operation of the credit counseling requirement suggest that it provides little benefit to debtors who receive the counseling because the only realistic option for many is to seek relief under the Bankruptcy Code.
(a "voluntary bankruptcy" that is filed by the bankrupt individual or organization).
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 ("BAPCPA"), substantially amended the Bankruptcy Code. Many provisions of BAPCPA were forcefully advocated by consumer lenders and were just as forcefully opposed by many consumer advocates, bankruptcy academics, bankruptcy judges, and bankruptcy lawyers. The enactment of BAPCPA followed nearly eight years of debate in Congress.
Most of the law's provisions became effective on October 17, 2005. Upon signing the bill, President Bush stated:
Under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts. Those who fall behind their state's median income will not be required to pay back their debts. The new law will also make it more difficult for serial filers to abuse the most generous bankruptcy protections. Debtors seeking to erase all debts will now have to wait eight years from their last bankruptcy before they can file again. The law will also allow us to clamp down on bankruptcy mills that make their money by advising abusers on how to game the system.
Among its many changes to consumer bankruptcy law, BAPCPA enacted a "means test", which was intended to make it more difficult for a significant number of financially distressed individual debtors whose debts are primarily consumer debts to qualify for relief under Chapter 7 of the Bankruptcy Code. Contrary to this intention, however, the Means Test often results in debtors more easily obtaining a discharge. If a debtor does not qualify for relief under Chapter 7 of the Bankruptcy Code, either because of the Means Test or because Chapter 7 does not provide a permanent solution to delinquent payments for secured debts, such as mortgages or vehicle loans, the debtor may still seek relief under Chapter 13 of the Code. A Chapter 13 plan often does not require repayment to general unsecured debts, such as credit cards or medical bills.
BAPCPA also requires individuals seeking bankruptcy relief to undertake credit counseling with approved counseling agencies prior to filing a bankruptcy petition and to undertake education in personal financial management from approved agencies prior to being granted a discharge of debts under either Chapter 7 or Chapter 13. Some studies of the operation of the credit counseling requirement suggest that it provides little benefit to debtors who receive the counseling because the only realistic option for many is to seek relief under the Bankruptcy Code.
Debt settlement, also known as debt arbitration or debt negotiation, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.
As a concept, lenders have been practicing debt settlement thousands of years. However, the business of debt settlement became prominent in America during the late 1980s and early 1990s when bank deregulation, which loosened consumer lending practices, followed by an economic recession placed consumers in financial hardships.
For the debtor, this makes obvious sense - they avoid the stigma and intrusive court-mandated controls of bankruptcy while still lowering, sometimes by more than 50%, their debt balances. Whereas, for the creditor, they regain trust that the borrower intends to pay back what they can of the loans and not file bankruptcy (in which case, the creditor risks losing all monies owed).
Debt settlement provides the most flexibility of any program in terms of monthly budgeting. With the Debt Settlement approach, if it's necessary for you to skip a month, the only thing that will happen is that the program may take a little longer to complete. You can also "make it up" down the road by funding more than your basic level. You can even add lump sums from time to time to speed up the process. No other program provides this kind of real-world flexibility. This is why debt settlement is rapidly growing in popularity among consumers seeking to eliminate credit card debt and other types of unsecured debt.
This is the fastest and least expensive way to honestly become debt free, however it is not always for everyone.
During your no-obligation consultation, we will analyze your situation and help you determine the best approach for your circumstances. We're here to help!
As a concept, lenders have been practicing debt settlement thousands of years. However, the business of debt settlement became prominent in America during the late 1980s and early 1990s when bank deregulation, which loosened consumer lending practices, followed by an economic recession placed consumers in financial hardships.
For the debtor, this makes obvious sense - they avoid the stigma and intrusive court-mandated controls of bankruptcy while still lowering, sometimes by more than 50%, their debt balances. Whereas, for the creditor, they regain trust that the borrower intends to pay back what they can of the loans and not file bankruptcy (in which case, the creditor risks losing all monies owed).
Debt settlement provides the most flexibility of any program in terms of monthly budgeting. With the Debt Settlement approach, if it's necessary for you to skip a month, the only thing that will happen is that the program may take a little longer to complete. You can also "make it up" down the road by funding more than your basic level. You can even add lump sums from time to time to speed up the process. No other program provides this kind of real-world flexibility. This is why debt settlement is rapidly growing in popularity among consumers seeking to eliminate credit card debt and other types of unsecured debt.
This is the fastest and least expensive way to honestly become debt free, however it is not always for everyone.
During your no-obligation consultation, we will analyze your situation and help you determine the best approach for your circumstances. We're here to help!
Many people feel lost in debt, and find it hard to see a way out of their financial situation. Debt Advisors will provide you with a "roadmap" to financial freedom. We look at your individual situation and give you advice about which debt settlement option is well suited for you.
Take time to read about the three main options.
(click an option below)
Take time to read about the three main options.
(click an option below)
Options with unsecured debt
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