I can get really sick when I see what some of my clients have gone through trying to repay their creditors through debt consolidation before coming to me. They’ve paid a debt consolidation fees that are multiples of what a bankruptcy costs and have gotten nowhere with their creditors. Only after they’ve been sued and their wages garnished did some of my clients realize that the debt consolidation was a farce at their expense and the company’s profit.
These companies act as enablers to borrowers who are in way over their heads to stay in denial about the severity of their insolvency. They market themselves as an alternative to bankruptcy, and they are in limited circumstances. However, for the truly insolvent it’s like going to war with a sharp stick against a foe with machine guns. The odds are not with you.
Debt consolidation companies work first for their own profits, secondarily to the benefit of creditors, and lastly to your benefit, if it trickles down your way at all.
Creditors are not under any obligation whatsoever to reduce their claim against you in a debt consolidation like they are in bankruptcy. Only if they are afraid you’ll file bankruptcy will they write down their debt, and only after you’ve defaulted and the debt is aged long enough that your credit is shot is a deal likely to occur.
If you’re not very insolvent a debt consolidation may be better than a Chapter 13 in very limited circumstances. If you’re a candidate for Chapter 7 however, it is likely to be very harmful to your financial health.
At least get a bankruptcy attorney’s opinion in addition to a debt consolidation company before you commit to either option.
