Archive for October, 2008

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Bankruptcy vs. Debt Settlement

Thursday, October 23rd, 2008

Today I had a client in my office in Brooklyn who wanted to possibly retain me for debt settlement.  I mentioned the “B” word (Bankruptcy) and the man almost lost consciousness.  After reviving him, I had a calm conversation with him about the benefits of Bankruptcy in New York as opposed to debt settlement in New York.  The man still didn’t retain me.  His fears (and I would argue they are irrational) surrounding Bankruptcy overwhelmed any of the examples I was giving him.

So lets breakdown some of the differences between Bankruptcy in New York with a fictitious client in New York City who earns 40k a year and has credit card debt of about $30k.

New York Debt Settlement:

  • 15% fee upfront for the “initiation”(much like charging you an entrance fee to your car wash and then charging you a fee to wash your car): $4500.
  • Monthly fees of of anywhere from $50-$150 a month: $600-$1800 a year for however many years you use the service.
  • Typically a 20-30% fee of whatever money they have saved you due to debt settlement.  So if they saved you $10k off of your $30k, get ready to fork over about $3000.
  • No guarantee of success with any creditor.
  • No legal representations should any of the creditors get this crazy idea of suing you when you stop paying their bills for a while.
  • Arbitration clause in your contract if you have a dispute with a Debt Settlement company (can significantly limit your rights)
  • Credit Score plummets

New York City Chapter 7 Bankruptcy (so long as you qualify for it):

  • All unsecured debts (credit cards, judgments, etc.) wiped out in full.
  • Can cost anywhere between ($1000-$2500) for the ENTIRE procedure.
  • Takes months, not years.
  • Creditors are forbidden from contacting you (i.e. harassing you) when you file for Chapter 7 Bankruptcy.
  • Legal representation throughout (except in “adversary proceedings” in some rare cases and really depends on the agreement with the attorney.)
  • Credit Score plummets

While I agree there is more to it than this, the basic and most important differences between New York Debt Settlement and New York Bankruptcy are listed above.  If you New Yorkers do some research as well on your own, you’ll find that Bankruptcy is nothing to fear.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

Posted in Bankruptcy, Consumer Advocacy, Debt Settlement, Gersh Blog | Comments

Debt Settlement Companies exposed by the Wall Street Journal

Tuesday, October 14th, 2008

Just wanted to provide a link to a great article written in the Wall Street Journal about the failure,and the fees, involved with debt settlement companies.

http://online.wsj.com/article/SB122394458494631223.html#articleTabs%3Darticle

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

Posted in Bankruptcy, Consumer Advocacy, Debt Settlement, Gersh Blog | Comments

Why Debt Settlement in New York doesn’t work

Saturday, October 11th, 2008

I’ve been rambling on about this for the previous few posts, but I just want to again illustrate the severe pitfalls of debt settlement in New York

  1. The fee to “start” is usually 15% of your overall debt.  So, lets say you live in Brooklyn and you’re approximately $40,000 in credit card debt.  The initial payment you need to make to this debt settlement company in New York will usually be around $6,000.  I’m not really sure, to this day, what that initial payment covers, but the company charges it.  Think of it as an initiation fee.
  2. The monthly fees range and can easily rise to hundreds of dollars a month.  Again, I am not really sure what these “processing fees” take care of.
  3. Once your done paying your initiation fee of $6000, money which received from God knows where, and you’re paying your monthly fees for God knows what, you’re asked to save money in a segregated escrow account, which will be used to settle your debts. Great.  The only problem is that you likely wont have any money left over after the initiation fee and the monthly fee, and the little you do have left over will have to accumulate to an amount this company believes it could settle for before it will do anything.  So you paid them this money, now you have to save money while paying them money, and they don’t do anything until they think you’ve saved enough money to actually try and settle this debt.  Great news!
  4. During the time you’re supposedly saving this money in your “lock box”, you’re advised not to pay your creditors.  Once again-brilliant advice from the Debt Settlement companies that promise to save you thousands of dollars in interest and fees.  The creditors are now harassing you, calling you all hours of the day and night, your credit score has dropped to new lows, and the creditors are going to start suing you soon.  Oh, if they do sue, don’t expect the debt settlement companies to step in.  Thats usually not part of their contract.
  5. So you’ve now, after a year, saved enough to settle your $5,000 debt with Amex.  What now?  Well now you have to save enough to settle the remaining $35,000 in debt you have that you brought to this settlement company.  Buuutttt since you haven’t paid these creditors, interest, late fees, and the whole lot have now increased the balance you owe by anywhere from 50-100%.
  6. Lets say you realize this really didn’t help you and you want to sue them.  It’s usually going to be pretty tough.  Why is that?  That’s because the debt settlement companies tend to insert language in nice small print in the contract you sign which says that should there be a dispute, you’re going to Arbitration.  Thats not good.

Throughout the above, guess who got paid?  The debt settlement company in New York.  Guess who still has a ton of debt, potentially lawsuits, a poor credit score, and is in a position thats even worse than they were when they paid this $6,000 “fee” for…who knows.

My advice:  If you want to settle your debts, you can do it on your own.  You can download forms that, by Federal Law, mandate that collection agencies stop contacting you over the phone.  You can also discuss potentially filing for Bankruptcy.  I know I brought up the “B” word, but really, it helps more than it hurts for many people.  Do your own research and always trust yourself.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

Posted in Bankruptcy, Consumer Advocacy, Debt Settlement, Gersh Blog, New York City Real Estate | Comments

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