What do those "Debt Relief Agencies" Do? Do they work?

It seems every time you turn on the radio, TV, or go online, you see stories of individuals in financial trouble, and plenty of businesses, agencies and organizations offering to help them out. Recently, one particular “debt relief agency” has touted its “quick fix” services by encouraging consumers to stop paying their credit cards and “not more money to those greedy banks”. The service then promises to work with consumers to resolve their debt for “pennies on the dollar”. So, do debt relief companies such as the one described deliver on their promises?

Most debt relief companies operate like so: You pay them a flat fee, usually calculated as a percentage of your total debt, and sign a power of attorney over to the debt agency allowing them to “negotiate with your creditors”. You are then told to stop paying your credit cards. After you have stopped paying the minimum balances, credit card companies begin collection action against you, and may refer your case to a collection agency. Afterward, the “debt relief agency” will step in and make a lowball offer to the collection agency or creditor, which the credit card company may or may not accept.

I have received a number of calls recently from consumers that have paid “debt relief agencies” thousands of dollars to assist them in resolving credit card debt, only to find themselves in a far worse position: liens on property, wage garnishments, even foreclosure. The fact of the matter is that word is getting out about debt relief agencies, and more and more lenders are becoming unwilling to settle with the individual debtors, and rather seek resolution in court or through foreclosure. In most cases, the debt relief agencies are not licensed to practice law, so as soon as a debt collection lawsuit or foreclosure proceedings are commenced, the consumer is left high and dry, still in debt and hundreds or thousands of dollars out of pocket.

The success of any debt relief agency is completely dependent upon the creditor’s willingness to settle the debt at a fraction of what is owed. There is no obligation of a creditor to accept a settlement offer or reduce your debt to any amount other than what is actually owed. Bankruptcy is different, and in a bankruptcy case the Bankruptcy Court is essentially ordering the discharge of certain debts and does not rely on a third party’s ability to settle a case. However, only the United States Bankruptcy Court can compel the discharge of certain debts, and only if the laws and procedures for filing bankruptcy are followed. Bankruptcy is not the only option (or even the first or best option) to overcoming a financial problem, but it may play an important part in the debtor’s strategy, and in certain circumstances, be the last and best option for a fresh start.

New iPhone App: Means Test Calculator

Kelsey & Trask, P.C. is now offering the Chapter 7 Means Test Calculator (already available on our main website and our mobile website) as an application for use on the iPhone and iPod Touch.

Download it now because it will only be available for free for a limited time.

Use this worksheet to determine whether you qualify for Chapter 7 Bankruptcy under the first part of the Chapter 7 Means Test.

The application allows you to save your calculations, e-mail your calculations, or even save them to the clipboard.

How much does it cost to file for Bankruptcy?

The Bankruptcy Court charges the following fees to file for Chapter 7 Bankruptcy:

Filing Fee of $245.00, plus
Administrative Fee of $39.00, plus
Trustee Surcharge of $15.00
TOTAL FILING FEE: $299.00

The Bankruptcy Court charges the following fees to file for Chapter 13 Bankruptcy:

Filing Fee of $235.00, plus
Administrative Fee of $39.00, plus
TOTAL CHAPTER 13 FILING FEE: $274.00

IMPORTANT NOTE: The above fees are in addition to any attorney's fees and/or fees for the preparation of the Bankruptcy Documents, appearance at a Section 341 Creditor's Meeting, or representation in Bankruptcy Court. Any fees for legal services must be agreed to in writing between you and your attorney prior to the commencement of any bankruptcy proceeding.