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Should I Go With ClearPoint Credit Counseling or File Bankruptcy?

“Dear Paula,

I am at a crossroads with deciding between debt consolidation with a reputable lawyer in Manhattan, Clearpoint Consumer Credit Counseling, or taking a loan from Lending Club to resolve my debt. I realize I should have done something about this sooner but I always thought “things will change” – however, that’s not happening and I’ve finally come to terms with it.

I live in NYC, I’m in my mid-30′s and I, like many others, was greatly effected by the nation’s economic downfall leading to on and off unemployment since 2009. Years before that I had incurred alot of medical expenses and made bad choices in my 20′s. Hence, a $31K credit card/student loan debt.

I stay in this city because, for what I do, it is the best place to find work that pays a fairly decent salary. However, since 2009, I have not been able to find full-time work, only short-term project based jobs, to keep me afloat. By the time I pay rent and my monthly credit card payments, I have little left for savings or to pay more than the minimum amounts owed. I am basically working to pay my minimum payments.

I am $31K in debt, and have been carrying this with me for too long. I pay almost $900 in MINIMUM credit card payments a month, and my interest rates are the highest they could possibly be (some 24%+). I do have one card with a 12% interest rate and another that is at 0% and closed which I just make an automatic payment on. This 0% card is my highest balance card, totaling 50% of my debt, so I’m lucky in that respect. I would be fine if I could just get down the other 50% of my debt (15K), which consist of several cards, a retail store card and a student loan.

My credit score is 705 so it’s not that bad, mainly because I am 100% positive on making my monthly payments, having never missed a payment.

Clearpoint Credit Consumer Counseling Services said they can only lower interest but I am not sure if that means it will also lower my monthly payments, which is what I really need to happen. I need more disposable income.

I have been told my debt isn’t high enough to claim bankruptcy. The debt consolidation option with the lawyer requires me to start becoming delinquent with my payments so they can negotiate with my creditors. That scares me as my timely payments are the one thing I have going for me. Is this smart to do?

I am about to lose my job again, working for a large firm facing layoffs. I can’t catch up.

What would you do in my situation?

Thanks,

B”

Dear B,

I’m going to start with the end of your question and work backward. First and foremost, there’s no such thing as having “too little debt” to go bankrupt. Was it an attorney who told you this, or was it one of the companies you mentioned in your question?

When it comes to qualifying for bankruptcy, the ratio of your debt payments to your available monthly income is what matters most, and that would determine whether or not you would be eligible for a Chapter 7 (discharge of debts that wipes out everything but the student loan) or Chapter 13 (where you pay a percentage of the debts over 3-5 years and then the rest is wiped out) would be best for you.

You say you pay rent, so I’m assuming you don’t own real estate. You don’t mention a car and you live in NY, so I’m gonna make another assumption (you know what they say about assumptions, so bear with me) that you don’t own a car either. And you say that the one credit card at zero interest makes up nearly half of your debt. Which means your student loan debt (the one thing that wouldn’t go away under a bankruptcy) is less than 15,000 (although you didn’t indicate how much of your total is student loan debt).

So, I have a few questions for you to ponder. First, any consolidation or loan company that would enter into an agreement with you when your income is unstable is not the best reputable company in my mind.

If you miss a payment because one month freelance work is low, it can seriously effect your credit or bump you out of the consolidation program. In addition, many consolidators don’t always (not saying it’s true about these guys, because I don’t’ know them from Adam) pay your creditors by the due dates, which could also impact your credit.

So do you want to join up with a company that can take your money for their fees and then pop you out if you miss a payment? And as you said, one where you have to miss payments to get them to work with you if on-time payment history is important to you.

Next, I’m assuming that it’s with the freelance income you’re able to pay the $900 worth of minimum payments AND your rent. Not knowing how much your student loan payment is every month, my next question is: if you didn’t have those monthly debt payments (minus the student loan payment you make each month), would you have some breathing room? Do you wind up charging up your balances more when you’re unemployed, to make ends meet? If so, you’re caught in a wicked cycle.

I’m not advocating bankruptcy willy nilly. It’s not always the best choice for everyone. But it sounds like the debt, and the cycle of being unemployed and then trying to make ends meet hunting down freelance work, is creating undo stress for you.

I’d recommend going to see 2-3 bankruptcy attorneys for a free consultation, explain your situation and then see what they offer as options. Not knowing how much you make each year, or how much you’ve made in the past six months (which is the look back period for determining your “income”), bankruptcy or may not be the best financial option for you.

You can click here to find a local bankruptcy attorney in your area.

I can hear that you truly want to make good on these debts. And you can always go back and repay them later, once you’ve gotten back on a stable financial footing and built up some savings. But right now, making sure you can pay your rent and have insurance and food on the table without having your credit card balances grow and grow and grow each time you’re unemployed is more important to your mental health.

As for taking the loan from the loan company – it’s never a good idea in my mind to “borrow” to get out of debt – unless you’re borrowing from family and doing it as a draw on your inheritance, where it won’t impact your relationship with family members, I don’t generally recommend swapping one debt for another.

As for consolidation – before you go this route, call the creditors with the high interest – ask for the “workout department” – tell them you know that you’re not delinquent and you’d like to stay that way, so you’re asking for their help. Tell them that you’re considering debt consolidation and bankruptcy – tell them that what you’d really like to do is get them to lower your interest rate to 3%-4% so you can make your payments and actually make some progress on paying them off.

Most creditors won’t do this directly for you unless you are already 3 months late – so ask yourself – is it better to be a few months late and create a new payment plan with them or is it better to have a perfect payment history and be stressing out. Two years from now, the small dings of late payments will not have any impact. Your credit score is just a number. It’s better to do what works best for you financially, with the knowledge that you’re attempting to pay them, rather than force yourself to pay more than you can comfortably pay.

I’d still recommend talking with the bankruptcy attorney first. Good attorneys will help you weigh all your options, review your salary, and any non-exempt assets you may have and walk you through the pros and cons of all your options. I would be glad to do the same with a Financial Strategy Session over the phone. Check the coaching options on my website for more details if you want to go that route.

Paula

Should I Go With ClearPoint Credit Counseling or File Bankruptcy?Paula Langguth Ryan wrote Bounce Back From Bankruptcy (now in its 4th edition) the book that’s recommended by 5 out of 5 consumer bankruptcy attorneys and trustees nationwide. To know if it’s time to file bankruptcy, or what to do after bankruptcy to rebuild your credit and your life, visit Paula’s Bankruptcy Tools section and check out the Life After Bankruptcy Monthly Member Support Group, our books, and our free How to Know If It’s Time to File and How to Travel Without Credit reports at www.newcreditafterbankruptcy.com and www.paulalangguthryan.com

Paula is a debt industry professional who has volunteered his time to help answer reader questions.

If you have a debt related question you’d like to ask our team, just use the online form.

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  • jbny23

    Hi,

    Thanks for your replies everyone. I wanted to get back to you on your questions to better explain my situation here.

    Here is my debt breakdown since you asked:

    The 0% interest card’s balance is now at the $10K mark.

    The Student Loan balance (which I have now deferred due to unemployment) is in the low $4000′s.

    The rest of my debt comes in around $15K.

    My rent is $1K and utilities are $200, plus money for groceries, food, transportation, necessities, basic costs of living. In NYC that can easily add up to another $800-$1000 a month. EASY.

    To clarify, at the moment, I do NOT have enough money to pay both the minimum payments AND my cost of living expenses, including rent, as you had suggested. I am getting support from a friend but I can’t for much longer.

    Yes, it as the debt relief attorney was the one who told me that I had too little debt to seek bankruptcy as an option. This is a very well-known attorney who is all over the Internet. She specializes in NY State ONLY Debt Resolution and Bankruptcy Avoidance. Her claim is that she can help reduce my debt in half by negotiating with my creditors. She then builds her fee into the monthly payments which is about 25% of my negotiated debt, which is paid off over X months/years. Her claim is your credit score is poor at first but within 1 year it begins to rise and as soon as debt is paid off then scores resume and you’re not living with bankruptcy on your credit. Is this a good option?

    As for going after a lower-interest loan, it is the popular Lending Club that approved me. I was only going to take out a loan for the small balance card with a super high interest of 29%. The rest I was going to leave as is because either my other cards’s balances were lower than the offered rate or the balance was low enough I could pay it off soon (I hope).

    About Clearpoint – yes, they did explain to me that my monthly payment will not be lowered much. I am not sure how much this will help as my mo. payment is way too high as is. (To remind it is $900)

    Also, I am unemployed again, due to lack of project scope for a client I was working with so I no longer have the freelance work coming in. I am living off of unemployment at the moment and really struggling. I am feverishly looking for full-time work and interviewing but that’s all I can do until I land something. I am totally marketable, super smart, really good at what I do, so I am not an unsuccessful or lazy person by any means. I am just in a super-competitive industry with a lower demand for my trade in an economy where companies are tightening their belts.

    So I am torn on these option or….

    Do I “wait and see” how I always do, in hopes that I land a job and pay off my debt over the next few years?

    This is my never ending cycle. When is enough enough? I wasn’t able to pay off my debt even when I had a full-time job. The minimums were hard enough to meet. I am wondering – is it really that bad to have the Scarlet “B”? I wonder, in this economy and recent depression, are banks, loan officers, mortgage companies, etc. more forgiving now? How hard is it to reclaim yourself after going Bankrupt? What can I realistically expect if I choose this route?

    I am definitely going to contact several Bankruptcy Lawyers as you mentioned.

    Thanks for your advice…

    B

    • http://consumerrecoverynetwork.com/ask-a-question/ Michael

      Hi jbny,

      If after consulting with a bankruptcy attorney you determine that, even though stuck between a rock and a hard place, you will attempt negotiation and settlement of your unsecured debts, you do not need to add the expense of professional fees. Those fees will mean settlements take longer, and add an increased element of risk to the process that can be mitigated by being quick about settling.

      I will help you through the settlement process for no cost. That includes negotiating with creditors and debt collectors should that prove necessary. My only requests are that you first consult with a bankruptcy attorney, and also agree to journal the experience real time on this site (anonymously of course).

      Post an update if you want to take me up on the offer. Steve can forward you my direct contact info.

      • jbny23

        Hi Michael,

        I am just seeing this so sorry for the delay. Thanks for your offer, that seems very kind of you. I am going to think about it but times are tough right now. What is the typical negotiation/settlement that creditors offer? And is it often an upfront payment they request to settle?

        Thanks again

      • http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

        Targets for your settlement savings will vary from one credit card lender to the next, and can also vary when settling just prior to account charge off, or when settling with a collection agency or debt purchaser. I will be able to give you an accurate estimate and timeline for completion of each account in an initial strategy session.

        Settlements with original creditors prior to charge off can be lump sum, or spread out over no longer than a 94 day period (OCC guidance). This timeline can play to your favor depending on your creditors and available cash flow.

        Once accounts get assigned out for collection, or sold off to a debt buyer, your options for payments can expand or contract, depending on the company involved.

        Let me know if you would like to connect for the consult in reply. I can ask Steve to publish a “starter” journal page with some of the basics I will cover with you on the phone. You can journal the experience from there. The experience may begin and end with the consult, or it may go into full strategy sessions.

  • jbny23

    Thanks so much Paula! I am actually the one who wrote this questions and
    want to thank you for taking the time to answer in such detail and with
    concern! I have answers to your questions. Should I post them here?
    Thanks, B

    • http://GetOutOfDebt.org Steve Rhode

      Paula is great and I really appreciate her helping out.

      • jbny23

        Thanks Steve!

    • ThomasPNitzsche

      jbny23,

      ClearPoint is approved to provide certificate of counseling in NY if you choose to declare bankruptcy. Since it sounds like you have already talked to someone here it may save you a little time to get that from us rather than another agency. Also, if you have any questions about ClearPoint feel free to reach out to me. I am a current employee, former counselor and former client of ClearPoint.

      To answer your question about the debt management payment vs your current minimum payments: It depends on who your creditors are but TYPICALLY, the debt management payment is slightly less than your current total monthly payments. Your counselor should have provided that information to you, unless you only called for general information. I would definitely encourage you to do a full session with a counselor if you have not already since there is no cost or obligation (and meet with the BK attorneys) so that you can make an informed decision.

      Best wishes!

      Thomas Nitzsche, Media Relations
      ClearPoint Credit Counseling Solutions
      877-877-1995 x2675

    • Paula Langguth Ryan

      Feel free to post your answers to my questions here so folks can follow the thread. Or you can email me privately, as you wish, B. Peace, Paula

      • jbny23

        Hi,

        Thanks for your replies everyone. I wanted to get back to you on your questions to better explain my situation here.

        Here is my debt breakdown since you asked:

        The 0% interest card’s balance is now at the $10K mark.

        The Student Loan balance (which I have now deferred due to unemployment) is in the low $4000′s.

        The rest of my debt comes in around $15K.

        My rent is $1K and utilities are $200, plus money for groceries,
        food, transportation, necessities, basic costs of living. In NYC that
        can easily add up to another $800-$1000 a month. EASY.

        To clarify, at the moment, I do NOT have enough money to pay both the
        minimum payments AND my cost of living expenses, including rent, as you
        had suggested. I am getting support from a friend but I can’t for much
        longer.

        Yes, it as the debt relief attorney was the one who told me that I
        had too little debt to seek bankruptcy as an option. This is a very
        well-known attorney who is all over the Internet. She specializes in NY
        State ONLY Debt Resolution and Bankruptcy Avoidance. Her claim is that
        she can help reduce my debt in half by negotiating with my creditors.
        She then builds her fee into the monthly payments which is about 25% of
        my negotiated debt, which is paid off over X months/years. Her claim is
        your credit score is poor at first but within 1 year it begins to rise
        and as soon as debt is paid off then scores resume and you’re not living
        with bankruptcy on your credit. Is this a good option?

        As for going after a lower-interest loan, it is the popular Lending
        Club that approved me. I was only going to take out a loan for the small
        balance card with a super high interest of 29%. The rest I was going to
        leave as is because either my other cards’s balances were lower than
        the offered rate or the balance was low enough I could pay it off soon
        (I hope).

        About Clearpoint – yes, they did explain to me that my monthly
        payment will not be lowered much. I am not sure how much this will help
        as my mo. payment is way too high as is. (To remind it is $900)

        Also, I am unemployed again, due to lack of project scope for a
        client I was working with so I no longer have the freelance work coming
        in. I am living off of unemployment at the moment and really struggling.
        I am feverishly looking for full-time work and interviewing but that’s
        all I can do until I land something. I am totally marketable, super
        smart, really good at what I do, so I am not an unsuccessful or lazy
        person by any means. I am just in a super-competitive industry with a
        lower demand for my trade in an economy where companies are tightening
        their belts.

        So I am torn on these option or….

        Do I “wait and see” how I always do, in hopes that I land a job and pay off my debt over the next few years?

        This is my never ending cycle. When is enough enough? I wasn’t able
        to pay off my debt even when I had a full-time job. The minimums were
        hard enough to meet. I am wondering – is it really that bad to have the
        Scarlet “B”? I wonder, in this economy and recent depression, are
        banks, loan officers, mortgage companies, etc. more forgiving now? How
        hard is it to reclaim yourself after going Bankrupt? What can I
        realistically expect if I choose this route?

        I am definitely going to contact several Bankruptcy Lawyers as you mentioned.

        Thanks for your advice…

        B

      • http://GetOutOfDebt.org Steve Rhode

        It looks like the attorney you talked to before was just trying to talk you into a very expensive debt settlement program. From what you describe you have $25,000 worth of debt that needs to be addressed and a monthly payment program when you are unemployed does not make any sense, in my opinion.

        Here is something new to help you with the student loans. See http://getoutofdebt.org/51013/the-ultimate-guide-to-dealing-with-student-loans-you-cant-afford

        Regarding bankruptcy, I think this will answer your questions and cover the 27 myths about bankruptcy. See http://getoutofdebt.org/48847/so-you-are-going-to-file-bankruptcy-thats-good-news-congratulations

      • jbny23

        Steve, this is great information. Thank you so much. I feel better after reading it. I recently signed up for Getoutofdebt.com. It’s a very useful tool

        I strongly support what you are doing here. Good on you for starting this site. Great information you are sharing about a very scary thing, that apparently doesn’t have to be scary…

        B

      • http://GetOutOfDebt.org Steve Rhode

        What is getoutofdebt.com?

        Glad I could help. If you have a moment, please leave a site testimonial, here. http://getoutofdebt.org/testimonials/

      • jbny23

        I absolutely will!

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