5 Reasons Why Bankruptcy In Roseville Is Better Than Debt Consolidation

So you live in Roseville MN and you had one of the 5 events happened to you which resulted in overwhelming debt: 1) business failure; 2) income drop; 3) divorce or relationship break up; 4) medical problems; 4) bad financial decisions (we have all made them). You are stressed out because you are falling behind and you can’t keep up. That uneasy feeling of slowly drowning in debt, suffocating, and you can’t seem to pull out of it. If you are a human being you will feel your tummy churning and just a depression hanging over your head. 

I think many people, while feeling this way, see the commercials on tv or hear the commercials on the radio promising to help people straddled with debt overcome their debt problems magically by entering into THEIR debt relief program. However, have never been big on putting a lot of trust in what people, especially from out of state, promise me on tv or on the radio. But, I also understand the enormous amount of stress our guests are under and how you really, really want to believe the promises made in those ads. It reminds me a little bit like E-harmony commercials. You know what I mean, you get the warm fuzzy feelings hoping it to be true. For me, that is how our guests in Minnesota are sucked into debt consolidation programs.

The problem for our guests is they get sucked into these programs, make payments for years, and because the program fails, they file bankruptcy anyway. Believe me when I tell you they always wish they would have filed bankruptcy to begin with and gotten it over with.

The Roseville MN Bankruptcy Lawyers at Kain & Scott have been doing bankruptcies in Minnesota since 1972. We have seen a thing or two about the promise of debt consolidation programs over the years. We are going to tell you what we have learned. There are 5 reasons why debt consolidation is a complete waste of time. If you live in Minnesota and you are contemplating a debt consolidation program, this blog is for you!

REASON 1: Debt Consolidation Will Destroy Your CREDIT 

You read that right, as soon as that “counselor” from out of state tells you to stop making your payments, your credit score heads straight off a cliff. It doesn’t gradually go down, it go straight off a cliff. I have always found this to be peculiar- this idea that people want to save their credit and do debt consolidation to try and save it when debt consolidation will destroy it. Somewhere in our popular culture is this notion that if you make an effort to repay your debt that looks good on your credit. That is pure bullshit. If you stop paying your credit cards and other debts, the moment you stop, your credit score goes straight to the toilet.

At Kain & Scott our Roseville Bankruptcy Lawyers tell clients all the time that when you do debt consolidation, you are a walking billboard that your credit sucks. Why? Because, you are advertising to the world that you are struggling to make your normal payments on your debts and you sought help. It is certainly noble to ask for help but that has nothing to do with your credit score itself- which will suffer.

Many people try the debt consolidation route first to avoid the “b” word. Want to hear something funny though? Our guests would tell you they all have one single regret. They don’t regret filing bankruptcy but they would tell you they regret waiting so long to do it. That is what I really feel bad about. Don’t you think it boils down to human nature- the notion we all want to pay our bills? I think so. But, when I think of the suffering that goes on trying to avoid the “b” word, it makes me sad.

But enough with the emotional aspect of this- suffice it to say, it is a fact that your credit will suffer when you are in a debt consolidation program and you have stopped paying your debts on time.

REASON 2: The DEBT CONSOLIDATION COMPANIES Are Owned By Creditors 

Have you ever wondered who these out of state companies are? Who owns them? How do they make money? Do they care about you? Would it matter to you if I told you that some of these debt consolidation companies are owned by credit card companies? It is true- some of these companies are set up as subsidiaries of the credit card company. What? How can that be good for me you ask? Hmm, good question we answer. How can they look out for you if they are working for the dark side?

I met recently with a gentleman at our Bankruptcy Law Firm in Roseville who showed me his out of state debt consolidation statement he received after making payments to this outfit for years. After I read the statement, I felt rage. Want to know why? The debt consolidation fees were over $12,000.00 and guess when they were paid? Oh yes, they were paid on the front end of the plan assuring the debt consolidation company they would get paid handsomely if they could just keep you in the plan for enough time to earn all of these fees.

It was outrageous. Guess what happens when they earn their juicy fees? About that time your creditors get sick and tired of getting peanuts from this outfit squeezing their fees at the front end so they start to collect from our guest, garnish their wages and freeze their bank accounts.

You call the out of state debt consolidation company and now you get the “B” team not the “A” team that sold you this great plan. And now you hear what you dreaded all along. If you are bing garnished there is nothing they can do for you. What?? After all the promises they made and the payments you broke your back to make- not funny.

This is when you many Minnesotans reach out to us- mad, frustrated, and feeling duped.

REASON 3: ANY DEBT FORGIVEN IS TAXABLE

Under the tax code, if a creditor forgives debt you owe them, the creditor gets to take the loss as a tax deduction. So, when you hear a creditor say they are “writing your debt off as a loss” don’t get too excited because it does not mean what you think it does. Now I want to be very clear with my audience. Paying taxes on 50k in debt is much better than paying 50k. Let’s assume your tax bill is 18k. Paying 18k is better than paying 50k.

First, when the creditor says “they are going to write it off as a loss”, that does not mean they are not going to sell the unpaid debt to a collection agency, because they most likely will. Second, in the meantime, you will pay taxes on debt forgiveness as stated above.  So, debt consolidation is a bit of a double whammy. First, your credit looks like hell. Second, now you have to pay taxes on debt that was forgiven with money you don’t have.

Does this sound like a real solution to an overwhelming debt problem? Not to me either. To me, it sounds like replacing one problem with two more problems. UGH!

Now, do the debt consolidation companies tell you these things? Hmm, no they do not. Why not? Don’t they work for you? Shouldn’t they be required to disclose who owns them and who they really work for? I think they should be. The problem is us little folks don’t have paid lobbyists in Congress like the big creditors do.Have you ever called your Congressperson or Senator? This would be a good time to pick up the phone and raise a little hell.

REASON 4: It'll Feel like a Zillion Years before you GET YOUR LIFE BACK 

Ok, maybe it will not be a zillion years, but still, do you want to suffer throughout the life of a debt consolidation plan? In traditional debt consolidation, your credit sucks because you have stopped making payments, and now it will suck for years because the plans usually take along time to complete. In English, it takes too long to get your life back! As humans we all love certainty. How can you get certainty when the plan drags out forever?

I suppose it would be one thing if the debt consolidation plan was legally binding on creditors but it certainly is not. That means, you could be two years into a debt consolidation plan and one of the creditors says forget it, I am going to sue you and garnish your wages instead. You say, hey, this is unfair! Unfortunately, I see this happen all the time. When it does happen, do you think you will be a little upset? I think so!

So, now the plan takes forever and while you are in the plan you are on pins and needles it will work? Foolishness! We humans need way more certainty in our lives than this.

REASON 5: BECAUSE THERE IS A GOVERNMENT SPONSORED PLAN THAT IS MUCH BETTER!

Speaking of certainty, did you know there is actually a government sponsored debt consolidation plan? Yes- it is true. The government has a debt consolidation plan that is far better than doing a traditional debt consolidation plan. It’s called Filing Chapter 13 Bankruptcy and it rocks!

I just met with a couple who had $200,000.00 in credit card debt. A chapter 13 payment would cost them approximately $500.00 per month for 60 payments. That is a total of $30,000.00 in payments for $200,000.00 in credit card debt. That is a pay out of 15 cents on the dollar, with the rest of the debt wiped out- tax free!

That couple left our Roseville Bankruptcy Attorneys Office feeling like they were back in control of their lives. There is nothing worse than feeling like the world is out of control and your life is spinning around in this cess pool of debt and uncertainty.

Do you think this couple is better off doing debt consolidation, paying back all of the debt or paying taxes on the difference, wondering if the debt consolidation plan will fall apart anytime or in a government sponsored debt consolidation plan, where their payment is fixed, creditors are legally barred from collecting from you, and there is an end date to the plan, where all remaining unpaid debt gets wiped out-tax free forever!?

I feel bad for people who are in debt consolidation plans- I truly do. If they only knew there was a better plan, a plan that is far more predictable and produces far more relief for your family.

We do meet with many Roseville Minnesotans who tried debt consolidation only to have the program fail and then they did a chapter 13 plan. I feel bad for them because they spent part of their life doing what they thought was the right thing to do. In the end, they were drawn to traditional debt consolidation based on the promise of paying their debt- an activity we all want to do.

When they discover that the only person that really got paid was the debt consolidation company and now they still owe most of the debt and the plan has failed, most of our guests do not find that funny.

CONCLUSION

At Kain & Scott our Bankruptcy Attorneys in Roseville understand the human need to want to pay your debts. But, when considering your options on how to solve an overwhelming debt problem first, we find that debt consolidation is one of the worst options for your credit and for your family. The reasons are stated above.

For me, if I had an overwhelming debt problem, I would want to first review all of my options clearly. I don’t like making moves that will result in me not knowing where I am going to land. For any Minnesotan grappling with how to deal with a debt problem, please first review all of your choices first! You will save all kinds of time, money, and stress if you know your choices well and then pick the best one for your family.

From our experience, a careful review of your choices will leave debt consolidation out as a solution to your problem. These words come too late. For some of our guests, they will save them valuable time! 

If you have any questions about Chapter 13 Bankruptcy or Debt Consolidation please reach out to our Roseville MN Bankruptcy Attorneys and we'd be happy to help you out!

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