CREDIT COUNSELING & OTHER
ALTERNATIVES TO BANKRUPTCY

  1. Budgeting The Money You Have.
   2. Get More Income. 
   3. Consolidate Bills With Another Loan Or Mortgage.
   4. Credit Counseling Plans: Top 11 Things You Need To Know.

BUDGETING:

BEING MORE CAREFUL WITH THE MONEY YOU HAVE.

It's all about income and expenses....making do with the income you have and keeping your expenses as low as possible. The first step in dealing with mounting debt is to try to stop spending and to avoid borrowing more money. The next step is to sit down and work up a budget...which is nothing more than putting pencil to paper to figure out what you have to spend and where you need to spend it. This is the hardest thing to get anyone to do. Why? Because it's no fun....no fun whatsoever. Budgeting puts us face to face with reality and that can be painful. In my experience....people would rather do almost anything else...rather than sit down and work up a budget....but working up a budget is where it's at....and the only way to really find out where your money is actually going. Most people are flabbergasted at how much of their money is flitted away on things they want...as opposed to things they need.

The reward of budgeting is that you may be able to find your problem and fix it.

GET MORE INCOME:


You have finished your budget. You have separated out what is needed from what you want. You have done everything in your power to lower your expenses and you have disciplined yourself to live on less. However....you don't want to give up the house or the nice apartment or the nice car....and you don't want to move your kids out of the good school district...and you don't want to drastically change your lifestyle. You are willing to cut back here and there....but not as to those things. You don't want to have to make do with a lot less. You have worked hard and want to keep the things you have. You don't want to disappoint your spouse or your kids. But....uh oh....your expenses still exceed your income. What do you do?

Get more income...if you can....and fast. What does this mean? It may mean changing jobs. It may mean going back to school...if you have the time... to get more training so you can get a higher paying job. Most likely....if you are already over your head in debt...it means getting a second job...or making your job-age kids get out and work. It may mean trying to get some overtime at work. It probably does not mean sending your spouse to work because....these days....most of the spouses are already out working.

CONSOLIDATE BILLS:

BY GETTING ANOTHER LOAN OR MORTGAGE (OR REFINANCING THE MORTGAGE YOU HAVE)

O.K.....at this point....you have done all the budgeting you can stand...and you are working as hard as possible...but you can't work any harder....or you are getting real tired out working as hard as you have...or you have lost a job...or you are working hard, but never seeing your family. But...still ....there is not enough income coming in to pay all the bills. What do you do?

At this point.....and usually before this point....people will start borrowing more money...to stay current....but this is a trap. This is called the "Borrow from Peter to pay Paul" stage. However, unless you have a good, workable, solid plan where you can afford to repay the extra money you borrow....you are just buying time...putting off to tomorrow the problem you have today. And....you may be just making things a lot worse....for you and your family. Loans are not free. For every dollar you borrow....you have to pay back that dollar...plus interest. Oh...that interest. Interest...that's the killer.  Making you pay interest is what lenders are all about. Making you pay interest and interest and interest is how all those lenders make the money to feed their families. Their families will get fed....even if your family does not.

If you don't absorb anything else...absorb this. Nobody ever got out of debt by borrowing more money. Borrowing more money only makes sense if you know....or can reasonably predict....that you will have more money coming in now.....or real soon. No doubt....good, hard-working people.....just like you....always mean well when they borrow more money. You borrow more money because you hold out hope.....hope that the future will be better than the present. Hope is a funny thing. We all need hope...but hope can make us do.....in hindsight....some really foolish things.

There are risks. For example...when you take out a second mortgage on your home to pay credit cards and other bills, you are putting your home at risk. Why? Because you are putting your home up as collateral....in case you cannot pay... and when you cannot pay....the lender takes your home.

Also...offering up your home as collateral generally means you are taking what was a short-term problem and turning it into a long-term problem. Why? Think about it. The only reason the second or third mortgage has a cheaper monthly payment is because you are replacing a short-term obligation with a long-term obligation. Most of these mortgages keep you on the hook for 15 to 30 years...in many cases, well past the time when you expect to retire. When you take out a mortgage to pay off unsecured credit cards and other bills, you are getting short-term gain, at the expense of long-term pain. You are tying up for 15 to 30 years, income....in most cases....desperately needed to take care of you and your family.

Should you do it? Should you continue to "borrow from Peter to pay Paul". Only you can make that decision...but the decision you make carries a lot of risk and can hold you and your family hostage for many precious years to come. The real problem comes later when there is no more money to borrow from "Peter", and you can't pay "Paul". This is when your whole house of cards comes tumbling down. And if "Paul" is holding a mortgage on your home, Paul starts foreclosure to put your home up for sale.

Here's the important question: You only have just so many good, income-producing years. Do you really want to spend the best years of your life in debt?

CREDIT COUNSELING PLANS:

TOP 11 THINGS YOU SHOULD KNOW!

1. Credit Counseling: What Are They? What Do They Do?

What are Credit Counseling Agencies? Very simply....in most cases....they are basically collection agencies working for and....in effect...controlled by the credit card companies. We'll explain this more below.

What can they do for me? At most....they will help you lower your interest rates a little, and then usually only with respect to credit cards....and then, only with respect to credit cards with companies that are willing to participate. If what you really need is to get rid of some debt....Credit Counseling Agencies are of no use whatsoever. Only bankruptcy can actually get rid of debt. Is it any wonder that credit counseling agencies hate bankruptcy. They work for the credit card companies....and the credit card companies know that the one thing that can "unhook" you from their control is bankruptcy.

That said....if you can't pay all your bills....and want to consider a credit counseling plan...the second best advice I can give is to first check out how bankruptcy works and what it will do for your family. You will be totally surprised. Bankruptcy is so much better than credit counseling, but if you don't take the time to check out bankruptcy before you sign up for a credit counseling payment plan, you will never know....until it's too late. And you can find out for FREE about bankruptcy. Any bankruptcy law firm worth its salt offers a FREE INITIAL CONSULTATION.

The best advice I can give you is to never put your good money into the hands of any of these organizations. Why? Because you chances of success with credit counseling are slim to none.

Some of these organizations seem to be legitimate "non-for-profit" businesses, dedicated to helping people. These are called credit counseling organizations. The more legitimate ones set their customers up on repayment plans which at least lower interest rates somewhat on certain debts...usually just credit cards.

2. Credit Counseling: Many Are Scams:

However, many, if not most, of the organizations that run ads on TV, and especially on the Internet, are simply scams organizations, especially the ones that offer to make people "debt free" without payments and without filing bankruptcy. Their goal...pure and simple....is to sucker innocent people into sending them money. The sad thing is that people actually fall for these scams and....as a result....a lot of good, honest, hard-working....but not street-wise....people end up sending in a lot of hard-earned money and get absolutely nothing in return...except the sinking feeling of having gotten "suckered" and the heartache of losing hundreds or thousands of hard-earned dollars that could have been used to take care of their families. It just makes me sick and I just hate it for these families.

The bottom line: There is no truer saying than...."If it sounds too good to be true....it is".

Unfortunately, there is very little...if anything.... in the form of State or Federal regulation to oversee and protect the public against these scams and there is no easy way for the public to separate the scams from the possible non-scams.

And to make things worse....there are so-called "credit counseling agencies", "debt management organizations", and the like, that merely pretend to be legitimate credit counseling agencies....organizations that....once again.......merely sucker money out of people. One of the big ones is Ameridebt, which has been sued by one or more States' Attorney General. Why? For one reason because, although Ameridebt held itself out as being a non-for-profit organization...it was anything but. For instance, it is alleged that this organization illegally absconded with its customer's full first payment, money that should have be applied toward payment of the customer's bills.

3. Credit Counseling: The False "Non-Profit" Pitch:

One of the hooks used by these organizations is their representation that they are "not-for-profit". The truth is that any organization can make itself look like it makes no profit by simply paying huge salaries to its officers and other employees... or by paying inflated costs out to affiliated "for profit" companies.
 

4. Credit Counseling: The Misleading "SAVE 60% IN JUST
     SECONDS" Pitch:

Many, if not most, of the Credit Counseling outfits will get your attention saying things like this.  First off, they are only talking about credit card accounts, and then only with respect to those credit card companies that have agreed to play ball with them.  Second and more importantly, however, is the fact that this pitch sounds like they are getting rid of some of your debt.  This is NOT true.  At most, they can lower the interest rate on a few credit cards.  You still have to pay the whole debt, plus plenty of interest.  And this is the main distinction between what credit counseling and what filing bankruptcy can do.  In most cases, filing bankruptcy, especially under Chapter 7, gets rid of ALL the interest and also ALL the debt.



5. Credit Counseling: At Best, They Are "Bill Collectors",
     Working For & Controlled By Credit Card Companies:

And, even the true "non-scam" credit counseling operations are really just collection agencies for the credit card companies. The way it works is this. Certain credit card companies agree to lower their interest rates somewhat in exchange for agreeing to accept regular monthly payments on a repayment plan set up for a period of years by one of these credit counseling outfits. Why do the credit card companies agree to this? In major part...the purpose is to keep would-be customers out of the hands of bankruptcy attorneys. Why? Because bankruptcy attorneys don't just lower interest rates...bankruptcy attorneys make the credit card companies pay for their loose and risky lending practices, practices that leave good, honest, hard working people with more debt than they can pay. Bankruptcy attorneys use the bankruptcy laws to actually get people out of debt...and when you get rid of debt...you not only get rid of the debt...you also get rid of the entire obligation to pay interest on that debt.

Is it any wonder the credit companies hate bankruptcy and love there "legitimate" credit counseling organizations. At least with credit counseling repayment plans, the credit card companies have a shot at getting all their money back...plus some interest. That's better than the customer filing bankruptcy and the credit card companies getting nothing. In fact....I have been told...more than once...that...because bankruptcy is so powerful and such a threat to them....many legitimate credit counseling agencies are not even allowed to mention or discuss bankruptcy.

Understanding all this...is it any wonder that these credit counseling places "bad mouth" bankruptcy. Bankruptcy does what credit counseling agencies can only dream about doing for their customers.

6. Point By Point - Bankruptcy versus Credit Counseling:

Let's get more specific. Let's show you how Credit Counseling stacks up against Bankruptcy. Here are just a few of the things bankruptcy can do that credit counseling cannot.....

• Bankruptcy can get rid of debt.
  
  And...when you get rid of debt, you also get rid of the obligation to pay interest on that debt.
  
  Credit counseling can only get rid of interest, and then only some of that. With credit counseling, you still have to pay all of the debt, and most of the interest. The credit counseling pitch about getting you "Debt free" or the pitch to "Save you up to 60% in seconds" is false and misleading, at best.  Credit Counseling promises...but only bankruptcy delivers.  (Click here for a quick graphical comparison of scams, credit counseling and bankruptcy.)
  
  
• Bankruptcy lets you put credits under control
  
  Credit Counseling: The creditors are in control.

  Back To Top

• Bankruptcy gets rid of "pay day" loans.
  
  Credit Counseling can't do anything.
  
  
• Bankruptcy can put your secured creditors under control.
  
  For example, say you are behind on your house or car loan. Bankruptcy can put these creditors under control giving you months and even years to catch up. This can take the pressure off, and can be the difference between keeping or losing your house and car.
  
  Credit Counseling can't do a thing with these creditors.
  
  
• Bankruptcy can lower your monthly expenses, in the vast majority of cases, significantly more than Credit Counseling.
  
  Think about it. Bankruptcy can get rid of debt, and getting rid of a debt stops the payment permanently. You never have to pay it ever again.
  
  Credit Counseling: you still have to pay the debt, because Credit Counseling, at best, only gets rid of some of the interest.
  
  
• Bankruptcy helps you start re-building your credit faster.
  
  It goes without saying that the first step in re-building your credit is to get rid of some debt. Why? Because getting rid of debt puts you in a position to afford new credit, and because putting you in a position to afford new credit attracts new lenders willing to give you more credit.
  
  Credit Counseling doesn't get rid of debt...only some interest....so it takes you longer to get out of debt, and the longer it takes you to get out of debt...the longer it will take you to look attractive to new lenders willing to give you credit.

  Credit Counseling makes you less attractive to lenders, and therefore hurts your ability to get credit.

  Back To Top

• Bankruptcy can stop wage garnishments AND Bankruptcy can get rid of Federal and State income tax debt.
  
  Bankruptcy can put the IRS and State tax agencies under control, stopping wage garnishments and tax levies ....and.....bankruptcy can actually get rid of significant Federal and State income taxes (as long as you qualify under 4 simple rules),
  
  Credit Counseling can't do a thing. Credit Counseling has no power at all over Federal or State income tax agencies.
  
  
• Bankruptcy is a Federal law and has the full weight of the U.S. Federal government behind it.
  
  Credit Counseling is controlled by the credit card companies, who can change the rules of the game anytime they want.
  
  
• Bankruptcy is an established system of law, procedures and regulations, created to protect you. The Bankruptcy system is run by Judges and lawyers licensed to practice and closely policed by State Bar licensing boards.
  
  Credit Counseling: This industry is completely unregulated, with no one to protect you at all. Is it any wonder so many people get scammed out of their hard-earned money by so many of these organizations. But...Don't take our word for it. Read about the abuses for yourself. See the reports referred to below.
  
  
• The Bankruptcy version of "bill consolidation"....which is called Chapter 13.... is closely regulated to make sure that you can afford to make the payments. It also puts the full authority of the Bankruptcy Court to work for you to make sure you are not taken advantage of.
  

  Credit Counseling: Credit Counselors will put you into a payment plan....even if you can't afford it. Why? Because if they checked your budget....you would know...right off the bat....that you can't afford their plans....and that means you would look elsewhere for help. So what's the harm of agreeing to pay a credit counseling repayment plan you can't afford? Think about it. If you can't afford to pay the plan payments, you won't complete the credit counseling payment plan, and if you don't complete the payment plan, your hard-earned money will be wasted, your family will be even worse off, and worst of all, the credit card companies will go back and add on all the interest, late fees and over-the-limit penalties, as if you never signed up for the credit counseling plan. In other words, for lack of a better term, you and your family get "screwed. You lose, but the credit card companies that control the credit counseling agencies win....because every month they keep you paying and out of the hands of a bankruptcy attorney is a month they make money off you.

The bottom line: Instead of telling people how bankruptcy really works....and all the good things that can come from filing bankruptcy......the credit counseling outfits are forced to feed off the "stigma" that most people attach to bankruptcy.

7. Credit Counseling: Putting People Into Plans People
    Cannot Afford:

And even worse, the public gets sucked into repayment plans that....in my experience...they generally cannot afford...spending hundreds of dollars a month on credit counseling repayment plans....repayment plans which suck away money desperately needed to take care of and support their families....repayment plans which virtually guarantee that....in the final analysis...the only option left will be bankruptcy. 

You might ask why credit counseling places don't spend more time making sure that the would-be customer can afford the plan. The answer is three-fold. First...from my experience as a bankruptcy attorney, because most people have not been taught how to budget and because hope runs eternal in most people. Telling someone that you can reduce, say $800 a month, down to $600 is very seductive, and....in my experience, most people....when asked whether they can afford the $600 per month (in my example) will naturally say "yes" without ever putting pen to paper to work out the numbers. Any savings is better than none...right.  Second.....because working up an actual budget of necessary monthly income and expenses it just that ...work and it takes time and effort.  Third....because taking the time to work up an actual budget of necessary monthly income and expenses would reveal the ugly truth...the ugly truth being that most of their would-be customers really need to lower their monthly expenses a whole lot more than the credit counseling agencies can possibly offer.

How do we know? Because, in our office, time and again, we see people who have fallen out of these plans...people who found out ...the hard way....that they could not afford the credit counseling company's repayment plan.

8. Credit Counseling: Leaving Families Worse Off:

And even worse is that fact that putting people into credit counseling repayment plans that they cannot afford, only makes things worse.  People are left worse off than if they had never signed up.

It stands to reason that if you pay money on something you cannot afford....you have to take that money away from paying something else. And many times....the money is taken away from paying things far more important than credit card debt...things like your car payment, your house payment, or things needed by your children. I have seen people lose cars and homes needlessly because they signed up for a credit counseling repayment plan...rather than filing bankruptcy. And even worse...what they don't tell people....again, in my experience....is that when you fall out of one of these credit counseling repayment plans, the credit card companies go back and retroactively add in all the interest and penalties and late fees that they would have been owed.....as if the plan had never been set up.

9. Credit Counseling: Their Real Purpose- To Keep People
     Away From Bankruptcy Attorneys:

There are, I am sure, people who have successfully completed one of these credit counseling plans, but I suspect the percentage is very small. From the credit card company's point of view, credit counseling programs are always a success...regardless of whether or not the customer completes the repayment plan. Why? Because every month a customer makes a payment on one of these repayment plans.... is a month the credit card companies take in more money than if the customer filed bankruptcy ....and one more month that the customer is kept out of the hands of a bankruptcy attorney.

10. Credit Counseling: The Credit Card Company "Kickbacks"
       They Don't Tell You About:

One of the major "come-ons" the credit counseling companies employ is that fact that they do not charge you for their service. But...think about it. Every organization has to pay its bills, the salaries, the rent, the utilities, the cost of all those ads on TV, the cost of phone book ads, etc., etc.  The money has to come from somewhere.  So where does the money come from?

The answer is "kickbacks" from the credit card companies. But they don't call it kickbacks. They call this money "fair share". But kickbacks is what it is...pure and simple. It works like this. The credit card company pays the credit counseling company a percentage of the money that the credit counseling company collects for and sends in to the credit card company. The problem with these kickback-based operations is that the credit card companies can then exert tremendous pressure over the credit counseling companies to downplay, bad mouth and misrepresent the bankruptcy laws. In fact, one of the rules laid down by the organizations that oversee credit counseling agencies used to be....and perhaps still is.....that the word "bankruptcy" is never to be mentioned, much less discussed. What a surprise?

11. More Bad News About Credit Counseling:

And, this is just the tip of the iceberg. There is lots of bad news about Credit Counseling. But don't take our word for it. See for yourself the report from the Consumer Federation of America, a major consumer protection organization. To find the report, go to http://www.consumerfed.org/ , then click on "Finance", then click on "Credit Counseling". The report is entitled: "FIRST-EVER STUDY OF CREDIT COUNSELING FINDS HIGH FEES, BAD ADVICE AND OTHER ABUSES BY NEW BREED OF "NON-PROFIT" AGENCIES".