Is A Debt Consolidation Plan Better Than Filing Bankruptcy?

The subject of debt consolidation is a hot topic right now. I can’t turn on my television without seeing multiple ads from entities like Credit Associates that claim they have an absolute right to negotiate and address individuals’ debts through informal processes. However, in my experience, debt consolidation services that heavily advertise on the radio and on television overpromise and underdeliver. These entities are not equipped to address certain situations, such as those involving debtors who have very significant debts and 10 to 20 different creditors.

Creditors have no obligation to sign on to any interest moratorium, interest reduction, or debt reduction. Over the course of my career, I have only seen a few isolated instances where an agreement to a reduction of interest or principal balance on a small amount of debt was reached. Despite this, debt consolidation services are being used with more frequency. Approximately one-third of my clients now come to me after a failed debt consolidation plan after having paid thousands of dollars to a debt consolidation company to address their debt. In these cases, the creditors never agreed to a debt compromise, and choose instead to file lawsuits against my clients, thus precipitating bankruptcy. Some clients were in debt resolution plans requiring payment of over $2,000 per month to a debt consolidation company when they realized that they were still not going to be able to repay their creditors. This all the money they had spent had essentially accomplished nothing.

What Services Do You Assist Creditors With?

I assist creditors that have claims against entities which have filed bankruptcy. Chapter 11 creditors must take affirmative action and file a proof of claim in these cases. Large claims sometimes require ongoing representation within a Chapter 11 case to monitor the progress of the case and determine whether the claim is being challenged. I also represent creditors who are landlords who are unsure of their rights when a tenant files for bankruptcy. For example, the creditor may need to know whether the debtor has to assume or reject the lease, and what should be done with the security deposits or other obligations under the lease that arise during the post-petition period. I help initiate suits for breach of contracts claims and other business and commercial dispute against entities so that my clients collect the money that is justly owed to them.

Can Bankruptcy Stop A Judgment Enforcement By Creditors?

One of the primary benefits of bankruptcy is an automatic stay under 11 USC 362 of the bankruptcy code imposed immediately upon the filing of a case. This stay holds creditors in place and prohibits further legal actions to collect on their debt without authority from the Bankruptcy Court. In turn, this allows debtors to obtain relief from that debt through a Chapter 7 or Chapter 13 bankruptcy. A creditor that willfully ignores the automatic stay can be sanctioned and held liable for costs, damages and attorney’s fees.

Why Shouldn’t A Creditor Use A Collection Company To Collect Funds?

Collection agencies are best positioned toward smaller undisputed claims that don’t have defined legal issues. Very often, the reason that someone doesn’t pay a claim is because there is some type of legitimate dispute. The issues may not simply be about arithmetical calculations. In other words, there may be a pure legal issue that underlies the claims, such as goods that didn’t conform to the quality of the contract or goods that were not authorized to be purchased.

A collection agency for an undisputed claim that doesn’t involve legal issues may be more efficient, but it could also be a waste of time. This is because collection agencies can sometimes be slow to place claims with outside attorneys due to the fact that they aren’t motivated by a commission. This means that an agency may hold on to a claim for several months expecting a resolution or waiting for the individual or business responsible for the debt goes out of business. The responsible parties may decide to pay other creditors who are more diligent or vigilant. The loss of time, while a claim remains at a collection agency, may jeopardize the reasonable prospect for collection.

Why Should I Use An Attorney To Represent Me For Collection Efforts?

An attorney will be able to quickly analyze by means of a prompt demand letter and discussions with the potential defendant and their counsel whether or not there’s going to be any progress towards a voluntary resolution. If not, then the recommendation of formally filing a lawsuit can be made early in the timeline to better protect the client’s rights.

Get Information on Debt Consolidation vs. Bankruptcy In NJ, or call the Michael McLaughlin, LLC, for an initial consultation at (908) 373-8500 and get the legal answers you are seeking.