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What are the risks of non-lawyer debt negotiators?

New Yorkers will undoubtedly be aware of the number of debt settlement companies who advertise and say they can help people facing financial challenges to get a fresh start. While this is a tempting proposition, there are certain dangers with getting involved with these companies and not using a qualified lawyer who can assess all the alternatives, give the positives and negatives of consumer bankruptcy vs. debt settlement and help with all aspects after a decision has been made.

Debt settlement companies might have the ability to assist with some debts, but the initial phase of the program generally requires the debtor to place money in a savings account for three years or more prior to the debts being settled. Making the payments can be difficult and those who cannot do so frequently leave the program before clearing the debts. A budgetary review is vital to making an informed decision as to whether it will be possible to stay in the program for its duration.

The creditors do not have any legal obligation to negotiate a settlement for less than what is owed. The company might not be able to settle all debts. This is true even if the debtor can fund the account and remains in the program. Also, the company will often attempt to settle smaller debts first. This will allow the larger debts' interest to rise rapidly. Debt settlement companies will advise people to stop making their payments. It can harm a credit score to do this and might not even have the benefit of clearing the debts as a bankruptcy filing does. If the program does not work as planned, the debtor will likely be worse off than when he or she started. Lawsuits can be filed, wage garnishment might be attempted and there could be liens on property the debtor owns.

These issues are problematic before even getting to the chance that not all debt relief companies are honest and trustworthy. When there is overwhelming debt and a debtor is reluctant to file for bankruptcy, there are alternatives available. It is also possible that an attorney can give the positives of a bankruptcy and convince the debtor that this is the preferable solution. Prior to trying a debt settlement company, speaking to lawyers who are debt negotiators can help with coming to a decision and moving forward with it.

Source: consumer.ftc.gov, "Settling Credit Card Debt -- Debt Settlement Has Risks," accessed on Aug. 1, 2017

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