The following is
information provided to Frequently Asked Questions from Clients. The
information provided is my opinion and is based upon my experience as a
Bankruptcy Attorney and interviews of people who have used Debt
Consolidation Services and Bankruptcy Petition Preparers.
DEBT CONSOLIDATION SERVICES:
are many Debt Consolidation Services available. These services generally
provide you with a friendly and personable “Credit Counselor” (who is being
paid on commission) to meet with you and convince you to make monthly
payments to them, as a way of paying off your debts. I strongly urge you not
to go to these Debt Consolidation Services without the assistance of an
attorney, as I have met with numerous individuals who have been misinformed,
defrauded, or otherwise cheated by these organizations. A Debt Consolidation
Service is really just a Debt Collection Agency in Disguise that tries to
gain your confidence to get you to pay them.
people are very sophisticated and experienced operators who have vast
experience in convincing individuals to use their services. The individuals
who go to them for assistance are people who are honestly trying to avoid
Bankruptcy, are upset about their financial situation, and are especially
vulnerable to these operators. When you go to them for assistance you are
like a sheep walking into a den of wolves. You will be fleeced very quickly.
first thing that will happen to you is that your counselor at the Debt
Consolidation Service will get you to sign a Contract that you will
absolutely not understand, and which will allow the Debt Consolidation
Service to take much of your monthly payment as their fee. These fees do not
reduce your debt, but are taken as their profit from you. Often, many of the
payments that you make, along with a percentage of all other payments made
by you, will be taken by the Debt Consolidation Service, and will not reduce
your debts. Debt Consolidation Services also receive fees from the Credit
Card Companies for managing your plan. Often, these services will not even
clearly tell you how many payments you will be required to make under the
plan. This is why many people notice that after making numerous monthly
payments to the Debt Consolidation Service, that their debts have barely
been reduced. Of course by then, it’s too late.
The following are common questions from clients:
– I was told by the Debt Consolidation Service that they are a
Non-Profit Corporation. Doesn’t this mean that the United States Government
regulates them and makes sure that I will not be cheated?
– Absolutely Not. The only reason that these services are Non-Profit, is
because they want you to believe that they are a charitable organization
that is licensed by the government to help you. There is no reason for them
to be a Non-Profit organization except that they do so in order to make you
feel comfortable about using them and giving them money. Many of these
organizations have sister for-profit corporations that they send their
profits to, in the form of inflated rental payments and consulting fees,
which eventually end up in the hands of the owner. Also, the fact that they
are a Non-Profit corporation does not in itself offer you any protection
from being cheated.
– I signed up with a Debt Consolidation Service to pay off my
$10,000 in debt. They agreed to accept $500 per month for three years. I
made the payments for one year, but now one of these creditors who was
accepting my payments changed their mind and has now sent my account to a
collection agency who has refused to accept the monthly payments. This
Creditor has now demanded full payment immediately, and has now sued me.
What do I do now?
– This is another major problem with Debt Consolidation Services. The
contract that you signed with them but did not understand, required that you
make payments to your creditors, and to pay many fees to the Debt
Consolidation Service. The contract did not obligate your Creditors to
continue to accept your payments. They can always change their minds and sue
you in court, and freeze your bank accounts. This may come as a surprise to
you after you made most of the monthly payments that were required of you.
Of course by then, it’s too late.
– I signed up with a Debt Consolidation Service because I wanted to
avoid a bad credit record from a bankruptcy. But when I tried to get a
mortgage, I was turned down because I was told that my credit was bad,
because my credit report showed that my debts were being paid through my
Debt Consolidation Service. How come this ruined my Credit?
– This is another misrepresentation made by Debt Consolidation Services.
They will not tell you before you sign up and pay them fees, that their
Consolidation of your debts will be reported on your credit report in a very
negative way, and that it can impede your ability to obtain credit, such as
credit cards, loans or a mortgage. Debt Consolidation Services will give you
a misleading and exhaustive lecture on how Bankruptcy will ruin your life.
They will tell you all kinds of false and misleading information, such as
that by filing for bankruptcy you will be banished from obtaining any
credit, that you will be discriminated against, that you will not be
promoted on your job, and that you will suffer humiliation from a bankruptcy
by publicly declaring yourself to be a failure. None of this is true. Debt
Consolidation Services are closely aligned with credit card companies and
they want you to believe this propaganda, because they want you to pay them
their fees. Why would a Debt Consolidation Service recommend that you file
for bankruptcy in a situation where a bankruptcy filing would result in all
of your debts being wiped clean? Bankruptcy will have a negative impact on
your credit report. However instead of having many numerous monthly negative
references continually made on your credit report by your creditors, for
many people the best way to repair your credit is to take one negative
report of a bankruptcy, and then work to repair your credit from your new
and often debt free financial situation, so that you can apply for a
mortgage or loan in the future.
– I intend to sign up with a Debt Consolidation Service anyway. Is
there anyway to protect myself from being cheated?
– Probably not. But you should at least demand the following be written into
your contract and signed by the Debt Consolidation Service:
1. The Debt
Consolidation Service should state what percentage of people who sign up for
their program actually successfully complete the program. I assume that it
is about five percent. More of these people end up filing for bankruptcy
anyway, after spending thousands of dollars on these services.
2. A clear
statement as to what fees you will pay, the monthly plan payment amount, and
the number of months that you will have to make these payments, and a
guarantee that this will not change.
3. A guarantee
that your creditors will accept these payments and that they will not
transfer your account or change their mind and sue you anyway after you have
made many payments, and that if they do, that you will get your payments
you, no Debt Consolidation Service will ever give you these basic guarantees
in writing. This is why having an attorney is so beneficial to you. The
first responsibility of your attorney is to protect you from harm, by making
sure that your filing for bankruptcy will have benefits to you that far
outweigh the negative aspects of a bankruptcy filing. Attorneys are licensed
and monitored by the State of New York, and they have fiduciary
responsibilities to you as a client, to advocate for you and to advise you
on your situation, in a confidential manner. Considering that a Bankruptcy
attorney is often much cheaper than a Debt Consolidation Service, you should
at least contact an attorney for a consultation, which is often given free
– Is bankruptcy legal? I mean is it fair for me to get rid of my
– Bankruptcy is a legal proceeding based upon laws passed by Congress and
known as the Bankruptcy Code. Congress passed these laws because they
understood that people often through no fault of their own incur debt that
they cannot repay. If you have a substantial amount of debt, then you should
at least consult with a lawyer to determine whether filing for Bankruptcy
would be beneficial to you. Why should you suffer through the oppression of
debt and allow the stress to affect your relationship with your family.
Actually many supporters of Bankruptcy are children’s rights advocates who
understand that in many family situations, forcing the breadwinner to pay
back debts would only make children suffer because their parents would be
unable to properly support them. Do you think that your children will be
happy to remember their childhood by saying “well I know that my mom
couldn’t afford Christmas presents for us, but I’m so proud of her, because
she never missed a payment to her Debt Consolidation Service”.
DEBT SETTLEMENT SERVICES:
is a service in which an attorney or a non-attorney service contacts a
creditor and requests that the debt be fully resolved through a payment plan
or by a lump sum payment of a portion of the debt. This can be used to
avoid bankruptcy, but can be difficult to accomplish if creditors refuse to
work with you, especially if you do not have an attorney. Also beware of
unscrupulous services that may charge you fees upfront without actually
helping you. Also if you for example owe $50,000 and agree with the credit
card company to settle the entire debt for $20,000, under federal and state
tax law you will owe taxes on the $30,000 that you saved and the credit card
company will send you a 1099 tax form indicating that you have to pay
federal and state taxes on the $30,000. The benefit of Bankruptcy is that
you do not pay taxes on any debt that is discharged in bankruptcy.
BANKRUPTCY PETITION PREPARER:
that has been growing is the Bankruptcy Petition Preparer. This is a typing
service that offers to type up your bankruptcy petition at a low fee and
then give it to you for you to file it yourself in court and for you to
appear in court at the creditors meeting alone.
– I met with a Bankruptcy Petition Preparer. They told me that
they are not lawyers but that I don’t need a lawyer to file for bankruptcy.
Is this true?
– Bankruptcy Petition Preparers are happy to say that you don’t need a
lawyer, because they are not the ones who will need a lawyer if something
goes wrong with your bankruptcy. Most importantly, they simply fill in the
bankruptcy petition with whatever you tell them to type in. They cannot
offer you legal advice on how to prepare a petition, how to properly list
your creditors, or how to answer the questions listed in the petition. The
bankruptcy petition asks numerous questions that are very broad, and which
require years of experience by an attorney, in order to properly understand
the questions and honestly answer them in a way that benefits you as a
client. Remember, in a bankruptcy you will have to answer to answer
questions under oath, and your answers will be recorded. It is one thing if
you are prepared for these questions by your attorney who knows most of the
questions that you will be asked, by going to these meetings on a regular
basis. If you do not have an attorney, you are responsible for understanding
all of the questions, but you may end up misunderstanding the question and
therefore not answering it in a full and truthful manner. The Trustee may
then assume that you intentionally lied. This could prevent you from having
your debts discharged, or worse it could result in a referral of the matter
for criminal prosecution. At this point if you call up your Bankruptcy
Petition Preparer, they will say that they told you from the beginning
that they are not lawyers, and therefore they cannot help you. The problem
is that at this point, hiring a lawyer to undo this mess, could cost you
three times the money and aggravation that it would have cost you, had you
hired a lawyer from the beginning. Even worse, your attorney may be unable
to undo the damage that you may have done to your case by making statements
to the Trustee under oath.
– Why Can't I just use "We The People", aren't they cheaper than an
– In my opinion, you would be extremely foolish to use "We The People"
bankruptcy document preparation service, because they are not attorneys.
They are cheaper because they do not provide legal representation or legal
advice to you. "We The People" will type up your responses that you
handwrite on the petition. If you own a typewriter, you can do the same
thing and type it
yourself. "We The People" has been the subject of numerous proceedings in
Bankruptcy Court alleging that they have acted inappropriately and in fact
was found by the bankruptcy court to have "committed fraudulent, unfair, and
deceptive acts". In fact, the
United States Trustee brought a proceeding against "We The People" and they
entered into the following settlement agreement that limits their actions,
and places them under the supervision of the United States Trustee.
We The People
– I don’t own any assets, why shouldn’t I use a Bankruptcy
– Many people do not realize that a bankruptcy is a process that deals with
many issues other than what assets you own at the time you file for
bankruptcy. Individuals who have used Bankruptcy Petition Preparer have
come to me afterwards very upset after having found that the Trustee had
their case dismissed because they did not properly fill out the petition, or
could not comply with the demands of the trustee. Many people who do not use
attorneys to protect themselves from these situations, are rudely shocked to
learn that the Trustee is able to take their tax refunds, certain life
insurance policies, or that the Trustee has sued their relative to get back
money or other assets that were given as gifts years ago. If you file for
bankruptcy without an attorney and you discover that you made a mistake, you
will be surprised to learn that you are not automatically allowed to
withdraw your case.
responsibility that your attorney has is to make very effort to protect you
from something bad happening to you during the bankruptcy process. This is
why having an attorney is so important. Your attorney will explain the
questions that you will be asked so that you will avoid the problems that
can develop as a result of misunderstanding the questions being asked of
you. Your attorney should plan with you before you file for bankruptcy,
perhaps even by selling assets that you are not allowed to keep in a
bankruptcy and using the money to buy assets that you are allowed to keep in
a bankruptcy. This is referred to as “exemption planning” and is
permissible under the bankruptcy law so that you will be able to keep more
assets than you otherwise would have been able to keep. Your attorney must
also advise you on how to properly answer questions that will be asked of
you under oath, to help ensure that your debts will be discharged.
discharge of your debts is so important that it just doesn’t make sense
risking it, by trying to represent yourself without an attorney. As a result
of all of these pitfalls I suggest that even if you are set on using a Debt
Consolidation Service, or a Bankruptcy Petition Preparer that you at least
contact an attorney for a free consultation. Before you spend thousands of
dollars on a Debt Consolidation Service you at least owe it to yourself to
explore all of your options.
If you have any questions, please Call me or e-mail
me and I will schedule your Free
Consultation to get you
Jacob Silver, Attorney At Law
- Office Address
- 26 Court Street Suite -
1201 Brooklyn, NY 11242
- (718) 855-3834
- (718) 797-4141
- Electronic mail
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