Bankruptcy Help After a Debt Relief Agency Failure

Debt relief agencies often do not deliver what they promise. When they don’t, a debtor still has another option—bankruptcy. This can help the debtor recover from debt relief failure.

What is Debt Relief?

Debt relief is often called debt settlement. It’s when a creditor agrees to accept less than full payment as payment in full; i.e. the creditor settles the debt for, say, $0.50 on the dollar, writing off the balance and giving the debtor relief.

Anyone can try to negotiate their debt down—you don’t even need an agency to do it for you. Debt relief or debt settlement is voluntary—creditors aren’t obligated to accept less than everything they’re owed—so in order to try this, it’s important to show the creditor that what you’re offering is about the best deal they’re going to get. If the debtor is going to pay the creditor as much as the debtor reasonably can pay (based  in income, assets, cost of living, obligations, debts, etc.), then the creditor has an incentive to take the deal, rather than spend time and money fighting for a larger amount that it probably won’t get, anyway.

How Many Debt Relief Agencies Work

Many debt relief or debt settlement agencies play a dangerous game of “chicken” with creditors. They have the debtor send them the payments the debtor would otherwise make to the creditors. The debt relief agency then holds onto and accumulates this money (taking out its share or fees), until it has a large enough amount to make an attractive “lump sum” settlement offer to creditors.

The problem is, there is NO right to do this—if you don’t pay your creditors on time, you are in default. So if you are working with a debt relief agency that functions in this fashion, you have taken a bad situation—not being able to afford your obligations—and made it worse—you’re in default.

And remember: since settling a debt is voluntary, there is no guarantee this tactic will work, anyway; and indeed, it often does not.

Bankruptcy Is Available After a Debt Relief Failure

However, bankruptcy is always available as an option. Whether you have defaulted or are just staring at the specter of default, a debtor can exercise his or her right under the law to declare bankruptcy, in order to discharge debts (including, potentially, amounts owed the debt relief agency itself) and get a fresh start.

How an Attorney Can Help

First, an attorney can help you negotiate with creditors—the lawyer may be able to get you debt relief. But if that fails, the attorney can help you determine if bankruptcy is the right option; decide on what kind of bankruptcy to file; then help you actually file and deal with creditors and the court.