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Debt consolidation companies sometimes make matters worse

Despite consumer protection laws, companies continue to make lofty promises to people straddled with high debt balances. A growing number of firms tantalize people suffering under heavy debt with offers to reduce debts by as much as 70 to 80 percent. Cincinnati bankruptcy attorneys are aware that in some cases trying to work with unscrupulous credit consolidation firms can leave an individual in worse shape.

A growing number of companies offer to negotiate on a consumer's behalf with creditors to lower outstanding debts and payments. The service is provided for a monthly fee. In the meantime, the consumer stops paying creditors directly in the belief the debt consolidation firm is taking care of business.

The difficulty arises when the consolidation firm does not pass the payments along to the creditors. Some consolidation firms hold onto the money, without contacting the creditor all. Debt reduction is voluntary for businesses, outside a bankruptcy proceeding.

The debt consolidation company may have a track record of reducing one consumer's debt, but the company may tell another that it was unable to negotiate a lower balance in another case. Creditors are not obligated to work with debt consolidation companies and frequently will not if the debtor has a steady job and is able to pay a portion of the debt.

Meanwhile the consumer who has stopped paying creditors has a higher balance after interest and late fees have continued to mount. The delinquent payments may be reported to the credit bureaus reducing the consumer's credit score.

Filing for bankruptcy may not be for everybody, but making informed choices is prudent. A seasoned bankruptcy attorney can assess an individual situation and answer questions regarding chapter 7 and chapter 13 bankruptcy proceedings.

Source: Lansing State Journal, "Be wary of many debt relief pitches," Gene Turnwald 25 Apr 2011

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