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Why Bankruptcy Is A Better Choice Than Debt Settlement? A Case Study!

By Kevin Gipson, New Orleans Bankruptcy Attorney

You can’t turn on a radio or watch TV without hearing or seeing commercials for debt settlement companies that suggest that they are a better choice than bankruptcy.   Many, including myself, believe that these companies are scams.

There have been several articles on the Bankrptcy Law Network site that discuss the problems with debt collection companies, but the following experience of a client highlights the many problems.

I met with a client today that had signed a contract with a debt settlement company.

At the time I met with him he had paid several thousand dollars to the company with the understanding that they would negotiate with his creditors and settle the claims.

In June of this year the client was served with a lawsuit by one of his creditors and contacted the settlement company.  The client was told that the creditor would be contacted and the debt would be resolved.

Three weeks ago the client receives his paycheck and it is much less than he usually received.   After looking at the withholding on the check he realized that his wages were being garnished.

A call to the courthouse confirmed that the creditor had obtained a judgment against the client and that his wages were being garnished to satisfy the judgment.

The client has been unable to get the debt settlement company to call him back.

How would the result been different had a bankruptcy been filed:

1)  The money paid by the client was much more than he would have paid to file a bankruptcy;

2)  The bankruptcy would have stayed all collection proceedings against the client, so the creditor could not have sued the client for the debt;

3)  Even if a lawsuit had been filed, the lawsuit would have been stopped by the bankruptcy.

Fortunately, we will be able to stop the garnishment now and stop any further efforts by creditors to get money from this client.

Before signing up with a debt settlement company, consult an experienced attorney and review all of your options.

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Full post as published by Bankruptcy Law Network on October 02, 2010 (boomark / email).