I’ve Been Solicited by Wites and Kapetan to Restructure My Debt. – Margaret

“Dear Steve,

Ups and downs of commission-based salary coupled with tendency to put off tax debt to year end has resulted in 15 yr. accumulation of over 150K unsecured debt, most 3-9 months past due. Total equity less than 100K. Reduced income is allowing payment of mortgages and basic expenses, but little else. Have no more resources, have tried to work with creditors (hardship,etc, but only paying a portion of this debt.) Have talked to credit counselors, debt mgt people, etc. Read your articles, have appt. on Monday with bankruptcy attorney.

Have been solicited by a law firm (wites and kapetan) with an impressive website/resume who claim that they will restructure debt under their financial injury area. Claim a paralegal will negotiate with creditors immediately and that settlements will be based off original numbers, not inflated by fees/interest. Claim legal representation is included if necessary (local lawyer affiliated.) Their fees range from 15-20% of total debt, 1st 2 payments go toward their fee, the rest as debt is settled. Payments go into trust acct. in my name. Payment #s workable. What do you think?

Margaret”

Dear Margaret,

First off, thank you for reaching out to me and letting me offer my point of view.

Before we evaluate anything else I need for you to be honest with yourself about the life you expect moving forward. If you have reached your limit and can’t deal with this any more then a legal second change like bankruptcy makes more immediate sense. It also might make perfectly logical sense as well as the most affordable and most powerful way out of unmanageable debt.

Let’s just look at the numbers for a moment. The debt settlement or debt relief company is going to charge you about $30,000 in basic fees for settling your debt. If the law firm operates as others do then most of these fees will be paid early on and before you receive much, if any, benefit from the debt settlement services. This approach will leave you way out of pocket money you need, deeper in collections, and more likely to be sued by a creditor.

It may take you years to settle your debt and the majority of debt settlement clients never settle all their debt. Just take a look at “The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.”

The promise of local legal representation from firms in general has been hollow from many firms. What most people get is a call to a lawyer in their state, but not representation in court. For the most part you are told to represent yourself when you are sued.

And I can find no reason why you should pay any debt settlement company in advance. New rules went into force on October 27, 2010 which say that companies should collect a fee for settlement once they have actually settled the debt, not before.

Now, if we compare that approach with a legal fresh start like bankruptcy, which if you qualify for a Chapter 7 bankruptcy, will cost about $1,600 and eliminate your debt in a few months, stop all collections nearly instantly, and prevent you from being sued; which approach seems to make better sense?

I’m glad you already have an appointment with a bankruptcy attorney to go talk over your situation. That is excellent. And the reason it is great is because in order for you to make the best decision for your situation you need specific information about how the solution impacts you. The bankruptcy attorney will be able to answer all of your specific questions.

Another way to look at the situation would be after the meeting with the bankruptcy attorney, envision yourself advising a trusted friend in a similar situation. What would you advise them to do? Often times if we can take ourselves out of the equation we can make a better decision based on the facts, and not our emotions.

If, after meeting with the bankruptcy attorney, you are still uncertain about which path you should follow please come back and post an update in the comments. And I can’t emphasize enough how much a second opinion might be a benefit to you here. I would recommend you contact Damon Day, a fellow debt coach, and review your situation also with him to gain an additional perspective and clarity.

Please update me on your progress by