Debt Settlement VS Bankruptcy

When I started including my thoughts on debt settlement and writing some blogs about them I was amazed at the response and the views so thank you to everyone reading them.

Many times I was able to point them in the direction they needed for their benefit not some companies benefit. So far I have estimated that 2% of the people calling me or contacting me after reading them were clients for me that I could in good conscience help and save A LOT of money (ranging from 17k-80k).

Some just needed the right direction but I had someone that wanted to know why not just file bankruptcy and wipe it all clean.

Which leads me to this blog Debt Settlement vs Bankruptcy

If you have seen, heard or look at advertisements/commercials paid for by of course lawyers who want you to pay them to file bankruptcy they paint the prettiest of pictures to make all your problems go away in a snap.

Since most people reading these blogs are not qualified candidates for me then I believe I can give a real non bias opinion and lay out the pros and cons for each and give you the tools to make an educated decision.

So let’s start with the Pro’s BUT first let’s break it down as there are 2 MAIN types of bankruptcy. Back in the old days (prior to October 2008) you could file bankruptcy in the blink of an eye, but now you need to QUALIFY for it. So it makes sense to understand the two.

  1. Bankruptcy Chapter 13

Chapter 13 allows those with enough income to repay all or part of their debts an alternative to liquidation. It’s bankruptcy for those whose biggest problem is dealing with creditors’ demands for immediate payment, not lack of income.

An example of this is if the bank is getting ready to take your car or home, filing bankruptcy chapter 13 can actually be done on your own and it staves off the wolves so to speak, at least for a month which buys you some time for other options.

An over simplified way to understand this is think of the courts cutting your bills in half and then a structured payment plan is paid out to the court from anywhere from 1-5 years.

  1. Bankruptcy Chapter 7                                                                                                                                                          Is the most popular one for a variety of reasons, it allows you to walk away free and clear of any debt submitted to the courts with the exception of money owed to the government and student loans.

However now after the new laws kicked in after October 2008 you have to be “assessed” to see if you qualify for chapter 7 bankruptcy as you can no longer “just go file”. There was a means test created that you can google to read more so check that out if you are so inclined.

 

Bankruptcy chapter 7 stays on a credit report for 10 years, many future lenders look at this public record filing with different eyes. I recently had a client who filed Chapter 7 9 years ago and had a credit score now in the 700’s and he was denied for a credit card and the bankruptcy was the reason why. Now is that like that with all credit cards…. No. But it gives you an idea how future lenders look at bankruptcy and its given a more serious look as opposed to bankruptcy attorneys make it seem to be the ultimate tool to be free and clear.

PLUS from a credit standpoint what you need to understand that a bankruptcy is literally the worse mark you can have on a credit report. Plus from a mortgage lender position to buy ( or refinance ) if you have any more credit “hiccups” such as a collection or late payment lenders do not typically want to deal with you as they see this as  a continuous problem.

 

Now Debt Settlement

Debt Settlement can be considered an unofficial version of Bankruptcy chapter 13 without the public record on your credit report.

It’s basically a renegotiation of the original contract but without the bankruptcy stigma attached to it.

The quality of the debt settlement depends on the company involved. Many of the ones out there wait for the credit card companies to contact them and they take the 1st offer that is given to them which is usually about 30% of what the balance was.

I just found out that company I have never heard of (which means nothing as there are thousands out there) was charging the people I am currently guiding 20% of the debt owed! Wow!!

And they operate like I have typically heard with others, they come up with a number that you pay into an account of sorts and when the pot gets large enough they say they go after accounts for you for settlement but as I mentioned they just look at the letters and see who offered what and then say “hey we got one taken care of for you and save you …..”!

In this companies specific case if they saved them 30% of the balance but they charge 20% for their fees, so they saved you 10%?????????

 

Typically the “bigger the company” which they like to brag about to you the worse you are treated or once the agreement is solved the phone calls do not get returned like before you signed up with them as they have moved onto the next person/revenue/paycheck.

I don’t want to go into more stories but I typically help get an average of 60-70% of a discount and the absolute worst I have ever helped people with was 50% discount.

But that will be the difference between uneducated people who are basically just looking to get as many people into their program and take the deal offered to them as opposed to someone who teats your money as if its theirs and fights for every dollar as there is a BIG difference between a company’s profits and a family.

 

Feel free to contact me at wayne @ waynethecreditguy .com

(remove all the spaces, I just did that to avoid getting spammed)

 

If you have any questions and PLEASE be as detailed as possible with your situation, such as what your current credit score is, are you on-time with payments or late and if late how late and amount owed

 

Wayne Sanford is a credit and finance expert with over 13 years’ experience in the industry. He has reviewed over 16,000 credit reports and appeared on local and national TV on CBS and is a contributor to many online publications as well as being an Continuing educational provider for the Texas Real Estate Commission.

 

NOTE: 

I just felt the need to point this out but if i believe that after a conversation with someone after being told their complete situation and i feel that filing bankruptcy is the best option for them then i will suggest that and then discuss  all the pros and cons that come along with that choice.

And i have done that, but of course while i have to make the standard disclaimer that everything i discuss with people cannot be construed as financial or legal advice i will put myself in their situation and then let them know what i would do if in that position and give them the information and then they can make their own choices based on that data.

 

****  UPDATE:

When I was getting ready to post this blog this morning a perfect example just got emailed to me. A lady was told by a bankruptcy attorney she can’t file Bankruptcy 7 because her husband (the household) makes too much money.

Per his advice which baffles me greatly as the attorney should have asked these questions at the start since it’s not rocket science and now he is not taking/returning her calls. But now gave her advice that puts her in an even worse position now so will be talking to her later today to give her all her current options for her to decide what they think is best for their family.

I have said this for YEARS…. Just because your first name is “DR.” or last name is “ESQ.” does not mean they know EVERYTHING! It truly drives me nuts.

I learned a long time ago to doubt everyone and get several opinions, make sure I understand them and then see what is best for me and I use that to help people like you reading this and I hope it does.   =)

National Debt Relief Investigation and a story (PART I)

As I always mention at the beginning I am only documenting my opinion on these debt settlement companies as I am entitled to my opinion.

As a finance specialist for over 13 years with debt and credit I reflect back to the beginning when I knew nothing about this industry at all and as I mention and use an analogy for your legal rights it applies the same with this:

“If you don’t know your rights, then you have no rights”.

“If you don’t know your options, then you have no options”.

 

Companies in the debt settlement industry like Credit Associates that started me writing these kinds of informative blogs thrive on a consumer’s lack of knowledge. In fact that lack of knowledge is what keeps them in business.

I personally believe Credit Associates is one of the worst out there. As someone with a knowledge base of over 13 years I can spot the lies that are done in their commercials or advertising spots so I felt the need to point them out so someone doesn’t get taken advantage of.

A gentleman called me and said they read my blog about them and agreed with my assessment and then also spoke to National Debt Relief and then told me a rather shocking story that I will pass along to you today.

He said he had a business credit card at about $20,000 he is being forced to make the decision to let go.

The “Representative” he spoke to (you know… the salesperson) asked if he had any other debt and he said he stated he had a personal target credit card for about $5,000 and another credit card for about $4000.00 but they have been paid on time. It was only the business card that had started to slip.

They told him they would have to do “all 3 cards” in order to help him. They chatted about it and he said how much could you save me on the cards?

I of course was curious myself and when they told him they could get it all down to $21,000.00 there was a bit of silence on the phone as I had trouble believing such a pathetic amount and repeated what he told me to make sure I heard him right. That s right, he owed $29,000 and said they could only get him a savings of $8,000.00.

What scares me is this is possibly the norm. After all is it not the job of sales people to maybe exacerbate how much they could save? If that’s them bragging then oh my, what is their average?

 

HINT—see PART II of this blog (coming next week)

 

I asked him if he had a lump sum to get this all handled to go away and he said he did but not a ton of money of course. I informed him it was idiotic to add the 2 perfectly good paid cards he had to let them go and destroy his personal credit and after some conversation he wanted to work directly with me.

NOTE— This is a 2 part story as I also contact them as a potential client to see what they could do for me.

 

As I always say, a credit report is like a thumb print…. And every thumbprint is different so generic advice that is attached to your financial well-being is not the smartest move. Only by having a full and complete picture of what is going on is the way to truly get the best advice for you and your family.

 

Back to the Story!

I told him to keep his personal credit cards paid and to keep them paid and good. In less than a month I had the company agree to a settlement of $8,000.00

Now the thing you need to be informed about is while reading this is if the bank takes a hit on what you owe them they can 1099 you and the IRS considers that “undeclared income” and you have to give that to your CPA.

That of course sucks but it’s still a hell of a lot cheaper that paying the debt owed. Plus you can always set up a payment plan for it if necessary.

 

AN ADDITIONAL FYI is the bank has to 1099 you if they do in 3 years. If not then they lose the opportunity to take a tax break on it. we had a client get 1099’d 4 years later and a simple general dispute to the IRS got it dismissed and saved the client an additional $1,500.00 of their hard earned money.

 

So why was there such a money difference you may ask? It’s rather simple actually, if you don’t think you can get anything and you get told you can save $8000.00 you are very happy!

But when you don’t know you could actually save $12,000.00 then the $8,000.00 sounds pretty good.

As I always say, the bigger the company the bigger the overhead so you’re not a client you’re an amount.

They will take the 1st offer the bank gives them and then sell you on how good of a deal it is and how it benefits you so they can move onto the next client.

 

So that’s the end of part I of this blog, the next one may be short but it will be from my own direct experience of calling and emailing National Debt Relief as opposed to detailing you the story from a 3rd party person.

 

NOW I want to say that while this person’s experience with National Debt Relief may not be typical if they read this and say that’s not how we do things is possible. I would find it rather improbable that this client just happen to tell me the one bad representative that they have out of the possible hundred (more or less). Especially when it’s combined with my own experience listed in PART II.

 

I will note that the rep never told him how bad this will hurt his credit score and how future lenders will look at him which I feel is a disservice to the consumer.  Now it is possible they were never trained on that but as a credit and financial professional for over 13 years, isn’t that one of the reasons why you would be calling them???

 

Wayne Sanford is a credit and finance expert with over 13 years’ experience in the industry. He has reviewed over 16,000 credit reports and appeared on local and national TV on CBS and is a contributor to many online publications as well as being an Continuing educational provider for the Texas Real Estate Commission.

Have a question?  Send an email to Wayne      wayne@waynethecreditguy.com

Update to Previous Debt Settlement Blog PART I

UPDATE to the PREVIOUS Debt Settlement Blog PART I

 

So welcome back, I have to tell you I have never received so many phone calls in regards to a blog than this one AND AFTER SOME OF THESE CALLS NEVER REALIZED JUST HOW SLIMEY THESE COMPANIES ARE.

 

So email me with questions and your experiences with companies and their names, I will review the email, make my own call to them to verify the kind of tactics they use and let all who read these know what is done and why they try to do it to you!!!

 

Let’s just dispense with the standard chit chat and talk about what has occurred and been asked of me over these last several weeks. And I will also throw out some specific information and company names along with some of the company’s ways they “explain” the process and what they tell and don’t tell you.

That information will not be coming from me but from people that have emailed me with their stories (keep them coming!),  so if a debt collector reads this if it mentions their company name you can take a leap as I have proof of what was said and it wasn’t me making up stories.

Now that I got that part out of the way, let’s recap and point out the one question you can ask that slaps “Credit Associates” (And most likely others if they say this also) in the face with a bold face lie on TV.

Their commercial says “if you have more than $5,000 in credit card debt you have the right to let us settle that debt for a fraction of what you owe”.

Now they also mention “there’s a secret the credit card companies don’t want you to know”.

So mini recap – Tell them that you have a question first before you explain your situation. What is the right/law/rule that allows you to settle your debt for a fraction of the money owed?

Possible answers:

1) The Fair Credit Report Act (FCRA)

WRONG—- that has NOTHING to do with money you owe or settling it. It is in regards to the reporting and accuracy of information reporting on your credit file.

2) The Fair Credit Billing Act (FCBA)

WRONG—- this is basically to protect people from unfair billing practices regarding billing statements NOT debt settlement.

3) The Equal Credit Opportunity Act (ECOA)

WRONG—- protects consumers from discrimination based on race, color religion, etc.

4) The Fair Debt Collection Practice Act (FDCPA)

WRONG— this deals only with Collection Companies and their practices when trying to collect debt and what they can and cannot do.

 

The above is just a few popular laws that may be quoted and how you can respond to them to see their response and I guarantee you will see them moonwalk backwards and get back to trying to SELL YOU and should be pretty apparent to you that they are.

 

I just recently spoke to a gentleman we will call MIKE, he contacted a company called National Debt Relief. Mike owed $20,000 on a business card he used and had 2 other cards in good standing totaling with the first card $29,000.

He told me the company said they would have to take all 3 cards to help….                           REALLY?

When he asked what they think they could help get it down to they said approximately $21,000.

WOW!  That is sad….. I just had a $70,000 debt a client had and helped get it down to $15,000.

 

INSIDE INFORMATION

What these companies don’t talk about or “forget to verbally disclose to you” but its most likely in the fine print of the contract is what this method would do to his good standing cards is not pay on them for 3-4 months (destroying his current 750+ credit score) .

Here how this works…..

This is basically a game of leverage, if there is too much month at the end of the money and you’re paying on time or going 30 days late every so often then if you think about it what leverage do you have? Why would they lower the rate, you’re paying them and they actually want you to pay for years as look at your statement. It should have how long it will take to pay off and how much money they will make.

Once the money stops coming in and they stop getting paid and you hit the 90 days late part they really start to worry about their business agreement with you so now they are interested in doing a settlement but they don’t tell you how the process works so they hit you with what they call their payback plan or whatever term they use which typically does not benefit you at all.

What you need to understand is you can ask for discounts, now of course someone who deals with these people all the time is better qualified than you. As the companies you’re calling are trained to do this so while yes, you can try to do it yourself and “wing it”. But it does make sense that the more you do this the more you know how each company works behind the scenes.

 

IF the companies brag about being an A rated with the Better Business Bureau (BBB) then you may want to google the ABC investigation of the Better Business Bureau. It shows how they are a paid member and how members get more favorable ratings. The general public thinks this is done for free but it is a ploy, there are statements all over the internet where business owners say the “Sales” reps said we can help you with your rating if you become a member.

Most business owners hate the BBB as they have created the illusion of how they work for the public, but they just leverage their own made up “rating” system with what they think and just recently starting allowing consumers to rate the businesses.

Take me for example, the people who rated me 5 starts on the BBB site told me they and I have their affidavit’s saying so but as our business is filled with slime-balls even though I have 8+ years with NO Complaints and all reviews are 5 stars they rate me a C+?

I’ll keep you up to date as when I have a little time I will be suing them so that will be an interesting blog.

With the holidays coming I should be able to get in at least one more blog in but hoping for two so please email me your stories and experiences and if you need to speak with me my number is on the website.

I promise to give direct and straight advice, I may not be able to help if you do not fit the guidelines I use BUT I will point you in the right direction.

NOTE:

If you email me, then please send me a synopsis of your situation so i can be of more help to answer your questions…    =)

 

Want to learn more about how the world of credit works? Contact me today and get my book in full blown color. No nonsense direct answers and easy to understand.

                              How the “Real world of credit” works. wayne@ waynethecreditguy .com

(NO SPACES as that was done to prevent me getting spammed).

 

And of course if you need some credit work to increase your credit.