What is a Massachusetts Debt Consolidation Company Doing for You?
Debt consolidation companies may be for profit or nonprofit companies. As for profit companies, a Massachusetts based debt consolidation company is focused on the goal of all businesses – making a profit. Whenever profit is a primary motivation for a company, the consumer involved with such a company must be aware of the motivation behind the sales pitch. This is not to imply that Massachusetts debt consolidation companies are doing anything wrong, on the contrary, these companies operate are closely monitored and operate within very strict regulations. However, it is important for you, as the consumer, to understand how the debt consolidation process works.
In the case of debt consolidation companies which are nonprofit, be careful not to let the name “nonprofit” fool you. Nonprofit companies are allowed to pay their employees, sometimes very handsomely, for services rendered to the nonprofit. Again, the motivation behind the sales pitch is an important factor that the consumer must consider when dealing with a debt consolidation company.
How Debt Consolidation Companies Work
There are a number of ways that debt consolidation companies in Massachusetts operate. One method is to charge the customer administrative fees for negotiating with creditors. There is nothing unethical or illegal about this conduct, however, as the customer you should be aware of what you are paying and why you are paying for it. These debt consolidation companies make money by charging you through administrative fees, in this particular case, to negotiate a reduction in the amount of money that you owe to creditors.
Another method that debt consolidation companies use to turn a profit is to charge a percentage of your payments that you will make after negotiating a reduction in your debt. For example, the debt consolidation company may make a deal with a credit card company to reduce the $40,000 you owe to that credit card company to $20,000. The credit card company is willing to reduce your debt by 50% because it is more likely to be paid something, rather than nothing, recovering some of its losses. Further, because the debt consolidation plan can take many years before reaching a settlement, interest and other penalties will still accrue. The downside here for the consumer is that in a debt consolidation plan the consumer may be paying more money in interest and penalties with the debt consolidation plan in place than they would have by exercising other options.
Is Bankruptcy an Option for You in Massachusetts?
Bankruptcy is an option available to Massachusetts residents and may be the correct choice depending upon your circumstances. Ideally, if you can avoid bankruptcy by making payments over time, this may be your best option because your credit will remain intact.
Still, there are other options for people in different circumstances. Suppose you are currently working two jobs, earnestly attempting to meet your debt obligations but are still underwater or just barely scraping by. Or, maybe you are working one job but other demands in your life make it impossible to make any more money to pay your debts. When a person finds themselves in these circumstances, bankruptcy may be the best option.
PROS and CONS of Bankruptcy in Massachusetts
PROS:
The Automatic Stay
- Filing for bankruptcy in Massachusetts starts what is known as the automatic stay. The automatic stay allow bankruptcy petitioners in Massachusetts to be free from creditors immediately upon filing the petition in bankruptcy court. Creditor phone calls, demands for payment of any type, lawsuits, garnishment of wages, and any bank accounts or other assets in the process of being levied will cease with few exceptions.
Note: There is no such protection when you utilize the services of a debt consolidation company. Creditors may still pursue you and your assets even with a debt consolidation plan in place.
Lower Total Payments in Bankruptcy
- Filing for bankruptcy in Massachusetts usually results in lower total payments to creditors than that which occurs in debt consolidation plans. The reason that you may pay less overall in bankruptcy is that, in Chapter 7 for example, most of your debt will be discharged if you qualify. In Chapter 13, where a repayment plan is being established, it is possible that the overall amount of debt paid over the period of the Chapter 13 repayment plan could be as low as 10% of the amount originally owed.
CONS
Credit Damage
- When filing Chapter 7 bankruptcy in Massachusetts the bankruptcy will generally remain on your credit report for a total of 10 years. While the bankruptcy is visible to potential creditors and does increase your credit risk in the eyes of lenders, there are methods to rebuild credit even during this 10 year period.
- When filing Chapter 13 bankruptcy in Massachusetts the bankruptcy will generally stay on your credit report for a period of 7 years. Again, although the bankruptcy will appear to lenders on your credit report and although your risk to lenders is high, there are methods that exist to rebuild your credit.
Filing for Bankruptcy or Debt Consolidation in Massachusetts…a Complex Choice
Upon review of this article, it is likely clear to you that there is a great deal to consider before entering into an agreement with a debt consolidation company or before deciding to declare bankruptcy in Massachusetts. The decision is, of course, ultimately your own to make. Our firm can assist you in weighing your options in bankruptcy. Should you choose to file for bankruptcy in Massachusetts after reviewing your many options, our firm will guide you through the process step by step.
There is much more to learn about bankruptcy. In my opinion, you need to make a choice that is right for you and your unique circumstances before deciding to file for bankruptcy. To that end, I’ve written numerous articles that may be of help:
Bankruptcy and Credit
Is Bankruptcy the Best Choice for a Massachusetts Resident?
Property Exempt in Bankruptcy
Before Filing For Bankruptcy – Foreclosure Basics
Chapter 13 Explained
Chapter 7 Explained
How Debt is Handled in Bankruptcy in Massachusetts
Will I lose my Car When I File for Bankruptcy?
Massachusetts Bankruptcy FAQ’s
Consolidate Debt or Declare Bankruptcy in Massachusetts?
DISCLAIMER:
The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
