Help, Credit experts! What do you do with THIS real case?
The person who came to me for help: $40K income, healthy, in debt US$140K (yes, one hundred forty thousand dollars) ($60K student loans in forbearance, $7K auto loan, the rest unsecured debt: $50K is maxed out credit card debt, mostly at default 30+% rates and the rest is loans from friends. About $1K in tax liability.). Some debts are freshly (30 – 60 days) delinquent, but none has gone to collections yet. No previous BK, charge-offs, collections or judgments. All 3 Credit reports have no serious errors, FICO scores unknown. Person is motivated, has already shown me recent credit reports and bills, cut up credit cards, developed detailed list of assets (car + $3K in illiquid assets + $1K cash) and liabilities, and is writing a monthly budget.
What do you advise?
Is the Consumer Credit Counseling Service Debt Management Program the best solution? What are your successes or failures with the CCCS DMP? Costs and benefits? Please answer the questions I’ve asked. Thanks.
I have never had a client of mine successfully complete one of the debt consolidation programs. I have seen these companies take money from people, not negotiate debts for them, and generally ignore the consumer when they get sued on the bad debts. These debt management programs are the same thing as filing a Chapter 13 bankruptcy, except with bankruptcy you have laws protecting you against creditors and you can be sure you aren’t throwing your money away. You have no protection when dealing with debt consolidation companies. It’s a huge risk.
Since this person has a regular income, he/she is a good candidate for Chapter 13 bankruptcy. After 3-5 years paying into the Chapter 13 plan, the unpaid unsecured debt will be legally discharged. It will be no harder on their credit reports and score than negotiating debt through a debt relief agency.
