Debt Consolidation -
These agencies will meet with the debtor in a
personal session to go over his income, expenses, assets and liabilities,
and try to work out a repayment plan. These agencies often act like
13 trustee. Many will advise the debtor to go into default on
his payments, and stop paying his creditors directly. They will offer
to negotiate with each of the debtor's creditors directly, to try
to secure a lower interest rate, a principal discount, and/or a lower
monthly payment. Then, once the agreements are made, the debtor will
make one monthly payment to the agency, which is then distributed
to the creditors on a pro rata basis each month. The agency is paid
by receiving a "cut" of the debtor's monthly payment, usually
somewhere between 5-15%. This is somewhat similar to the percentage
received by the Chapter 13 trustee, which is generally between 4-10%.
Also, the debtor is often required to pay an upfront sign-up or administrative
Selection of a Debt Consolidation Agency
Selection of a reputable credit counseling or
debt repayment service is very important to the success of a debt
consolidation plan. The agency should be a member of the Association
of Independent Consumer Credit Counseling Agencies ("AICCCA"),
or the National Federation for Credit Counseling ("NFCC").
These groups attempt to have their members follow professional practices,
and keep the cost to the consumer to a minimum. Agencies which charge
very large upfront fees, or high monthly service fees, are most likely
not members of either group.
Consumer Credit Counseling Service ("CCCS") has been providing valuable help to consumers for decades, and is highly regarded. Representatives of CCCS have often spoken to bankruptcy attorneys about their service. In a particular case, it may be better for a person to avoid filing bankruptcy and instead go into an out-of-court debt repayment plan. This could be the case where the consumer has just about enough income to meet all of his expenses, and just needs to have the interest rate reduced, for instance, to allow him to do so. Most of these plans provide for full payment of the debt over a maximum 44-month period. The consumer also agrees to incur no new credit card debt during this period.
Factors to Consider Before Entering a Repayment Plan
Before using the services of a debt consolidation or credit counseling service, the consumer should keep in mind the following four factors:
Personal Debt Renegotiation
Sometimes it is possible for the debtor to simply
call his creditor or creditors directly and attempt to work out a
reduction of the debt personally. This type of approach is often taken
with business-type debt, and it helps if the debtor is somewhat financially
sophisticated and unafraid of dealing with banks and lawyers. The
debt restructuring can take many different forms, including a discounted,
lump-sum, one-time payment, which the creditor agrees to accept as
payment in full, or installment payments over a period of time. The
funding for the lump-sum payment often comes from a borrowing or gift
from a friend, relative, or business associate. It usually helps if
there are only a handful of creditors involved.
The debtor may elect to hire an attorney to represent him
in trying to obtain an out-of-court workout or settlement with his creditors.
This can be advantageous, especially if the attorney is knowledgeable and experienced
in this area, and charges a reasonable fee for his services.
Selecting the Proper Attorney
Care should be made in selecting the proper attorney
for the job. It does not make sense to pay an attorney an hourly fee
of $ 300 or more, just to have the attorney make a number of phone
calls and send letters and emails to creditors, if the attorney is
not reasonably sure that the efforts will bear fruit. Some attorneys
may charge a "success fee", where they are paid a fee based
on the success they have in reducing the amount of the debt.
Written by Henry Rendler
Written by Henry Rendler
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