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.

Happy Holidays

Under What Circumstances Can Creditors Object to the Discharge of a Debt?

A creditor may object to the discharge of amounts owed to them by the debtor under certain circumstances. If a creditor objects to the discharge of any of the debts listed in your petition or schedules, such objection must be raised within 60 days after the first scheduled §341(a) Meeting of Creditors. Alternatively, the trustee must move to dismiss your case within the 60-day period following the §341(a) Meeting of Creditors if he or she finds that the granting of relief would be an abuse of the provisions of Chapter 7.

If you incurred new debt of $500.00 or more for "luxury goods or services" within the 90-day period before your bankruptcy, or if you obtained a cash advance from a credit card or other loan in the amount of $750.00 or more within the 70-day period before your bankruptcy filing, that debt is presumed to be non-dischargeable, absent the debtor's showing to the contrary.

A creditor may object to your request to discharge a debt if the debt was obtained or incurred as a result of fraud, embezzlement or larceny, or any willful or malicious injuries you have caused others. If the Creditor establishes by a preponderance of the evidence that the debt was obtained by any of the above means, the debt will be deemed non-dischargeable.

Creditors may object to the discharge of certain debts if you have concealed or destroyed any property or financial records; made any false statements in connection with incurring a debt or other financial obligation; withheld financial or other material information; failed to explain losses; failed to respond to material questions permitted under the Federal Rules of Bankruptcy Procedure; or if you were granted a discharge with respect to that debtor in a prior bankruptcy case filed within the last 6 years.

Data Security: Best Practices Are Not Always High Tech

When I was an attorney practicing personal injury law in New York City, I was taking the train from court back to the office. Anticipating a busy afternoon, I called the office to find out of a particular client had dropped of a packet of discovery materials and chatted briefly with my colleague about the yet-to-be completed discovery.

Immediately after I ended the call, I was approached by a gentleman who asked if I was an attorney. I answered that I was, and apologized if I was speaking too loud on my phone. He told me he hadn't been bothered, and, as an attorney himself, acknowledged the urge to get work done while on the train.

He then shared the following story:

Approximately 10 years ago, he was on the train riding home after work and overheard a man in front of him talking on a cell phone. He soon realized that the conversation he was hearing was between an attorney and either co-counsel or a client about a case that he and his office was handling for the defendants in an open case. When the discussion turned to the plaintiff's tactics for the upcoming trial, the accidental eavesdropper was ready with pad and pen.

When the time for trial came, the plaintiff's counsel could not understand why their opponents consistently and instantaneously adapted to their every procedural move and change in trial strategy. In the end, the defendants won the day, due in part to good lawyering, but also to the accidental intelligence gathered by a observant associate. He cautioned me about the risks of talking business on the train - even the things I thought were mundane could be a gold mine if the wrong person happened to overhear me.

So, why share this anecdote?

According to the electronic evidence blog Ride the Lightning, a mid-sized law firm has banned iPhones due to security risks. Whether the iPhone presents a significant data privacy risk (especially in the day and age of M.G.L. 93H) is a topic for another time, but, suffice it to say, the iPhone and other portable electronic devices do have inherent security flaws, such as lack of encryption support or caching of recently-viewed data. Similarly, traditional voice only cell phones can present the types of security risks that turn the tide of litigation and can significantly harm a client's interests or privacy. Still, these devices are indispensable in providing good service to our clients and responding quickly to a need for additional information or to provide a prompt response. Both a voice conversation or misplaced data presents a security risk, but I don't think any of us would advocate the wholesale banning of cell phones from law firms. Rather, a solution (and possibly the best practice) is the common sense utilization of the technology available: Don't talk when others might listen, and don't place data on "losable" technology that you don't want falling into the wrong hands. Is the solution high tech? No. Does it work? Absolutely.

Attorney Trask of Kelsey & Trask, P.C. practices bankruptcy and civil litigation with Kelsey & Trask, P.C., was a cryptologic materials manager in the U.S. Marines and has experience planning and implementing encrypted communications (voice and data) networks. If you have any questions regarding M.G.L. 93H, contact us at (508) 655-5980 or click here.

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