Advertisements for debt consolidation services run frequently on late-night television. The reason: debt consolidation is highly profitable — for the debt consolidation firms at least. For debtors, the benefits are questionable. Many of our clients come to us after trying to resolve their financial problems with debt consolidation companies. ONE HUNDRED PERCENT OF THESE CLIENTS HAVE EXPLAINED TO US THAT THEY ARE IN WORSE FINANCIAL SHAPE THAN BEFORE TRYING TO WORK WITH DEBT CONSOLIDATORS.
At the law firm of Gross & Patterson, LLC, in Pittsburgh, our attorneys are here to help protect the rights of debtors. We offer a free initial consultation to help you determine whether debt consolidation or bankruptcy would be a better option for you.
What Happens in Debt Consolidation?
Debt consolidation is different from debt counseling, which is a legitimate service. Consumers who file bankruptcy in Pennsylvania are required to take two debt counseling courses: one before they file and one after.
Dept consolidation is a service that consolidates your credit card debt into one payment, which you pay to the debt consolidation firm. The debt consolidation firm promises to negotiate with the credit card companies so you only have to pay pennies on the dollar for what you owe.
This is what the debt consolidation firm may not tell you:
- The debt consolidation company will take its fees up front. It won't even begin to negotiate with the credit card company until it has your money in hand.
- While you are paying money to the debt consolidation firm, interest and penalties will continue to accrue on your credit card debt.
- Credit card companies have no incentive to agree to terms with the debt consolidation firm. Most refuse to reduce credit card debt.
- Even if the credit card company accepts less than the full amount of what you owe, you will likely receive a 1099 for the forgiven debt at the end of the year. The IRS considers forgiven debt as income.
In most cases, the only winner in debt consolidation is the debt consolidation company. You may end up paying hundreds or thousands of dollars, and at the end of the process you will still be in debt.
If you file bankruptcy instead, you have a much better chance of obtaining a complete discharge of credit card debt with no tax consequences. You will not have to negotiate with credit card companies, and you enjoy the full protection of federal bankruptcy laws.
Contact a Bankruptcy Lawyer
To schedule a free initial consultation about the pitfalls of debt consolidation, call 412-567-4732 or fill out the contact form on this website.
