Adam Law Group Blog

Why You Should Avoid Debt Settlement Companies

Each year over 790,000 individuals and businesses file for bankruptcy relief. While this number may seem high, it is actually lower than past years. People who file bankruptcy come from all financial backgrounds and many are reluctant to use bankruptcy to solve their financial problems because they fear the social stigma or impact to their credit. Often debt settlement companies are viewed as a more attractive alternative to traditional bankruptcy, causing thousands of people to contact these companies for help. Unfortunately, these companies can cause more harm than good, making it important for you to know why you should avoid debt settlement companies.

Not All Creditors Will Settle

Companies offering debt settlement services usually claim that most or all of your creditors will work with them to settle what you owe. In reality, many creditors will not agree to lower the amount you owe them or accept a payment plan arrangement.  These creditors will continue to expect payment from you, leading to a situation in which you are paying your creditors directly along with the debt settlement company.

Hurts Your Credit

Debt relief companies pressure creditors into settling a debt by withholding payments while advising you to ignore collection letters or phone calls that you are receiving. Eventually the creditor may settle and write off part of the debt. This settlement is reported to the three major credit bureaus, alerting other potential creditors to the fact that you do not pay your debts. Your credit score will then drop and in the future you will have a hard time getting new loans or only be able to obtain loans with extremely high interest rates.

Increases Your Debt

Debt settlement companies do not help people out of the goodness of their heart. Each client can expect to pay high fees that are often not clearly disclosed along with interest to their creditors caused by late payments or a poorly negotiated payment plan. Instead of helping you get out of debt, these companies may add to your financial burden.

Collection Activity Escalates

Once a company realizes you are working with a debt settlement company, or your debt is sold to a new company that refuses to work with the settlement company, collection activities often escalate. Creditors report the delinquency to the credit bureaus, begin calling several times a day, and may even sue you. If the creditor wins a judgement against you they can place a lien on your property or garnish your wages.

Why Bankruptcy is the Better Alternative

If you or someone close to you is struggling with overwhelming debt bankruptcy may be the smarter option. Filing for bankruptcy removes your obligation to pay off all or some of your debts and stops all collection activities. If your vehicle has recently been repossessed or your wages are being garnished, obtaining bankruptcy relief helps you to get your vehicle back and stop garnishment.  

Instead of hurting your credit and increasing your debt by working with a company that promises relief, contact the experienced bankruptcy attorneys at Adam Law Group. We will work to end collection activities and help you achieve true financial freedom. Contact us today to schedule your initial consultation at our conveniently located Jacksonville, Florida office.