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Bankruptcy v. debt consolidation

Boston, MA |

My husband and I have about $35k in unsecured debt. We used our credit cards to pay bills and buy groceries for almost 2 years when he was in a dying real estate business and then had a short term disability due to an emergency surgery. We have good jobs now but are struggling to pay old debt. Is debt consolidation a good idea? I already spoke with a few companies. I know they can get the debt down to about 40% with a 10% fee. I am worried about the fact that they want you to do nothing for 5 or 6 months until they come in with a low ball offer for the creditors. I am afraid of being summonsed to court. I am sending out letters to the creditors (2) requesting they stop calling. The phone calls are horrendous. I understand this will still have a negative impact on my credit score. Which effect is worse, bankruptcy or debt consolidation. I want to be responsible and pay my bills. I am not looking for an easy out.
Also, do you know how long it will take to get a reply on a complaint filed with the FTC? I went online earlier this week and filed a complaint because I was sure that a collection agency crossed the line.

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Attorney answers 4


I would suggest that you speak with a bankruptcy attorney immediately. Debt consolidation firms are often a scam. A bankruptcy attorney will give you a better idea of your options. While you have $35K in unsecured debt, the decision of whether to file for bankruptcy will depend on quite a few factors including your current assets and what you can bear to part with. There are certain exemption amounts (depending on if you choose the "state" or "federal" schedule of exemptions) for assets but they are pretty low in most circumstances.

As for your credit score - yes, there is an impact. It will be on your report for 10 years. HOWEVER, it is the best way to rehabilitate your credit in many circumstances. Once you declare bankruptcy, there is a statutory period of time (many years) where you cannot file for bankruptcy again. This gives creditors a feeling of calm. As long as you are upfront and explain the circumstances around it, you can probably get a car loan within a year of going bankrupt.

Speak with a local bankruptcy attorney. Be honest and thorough in the amounts you owe and the assets you have. Good luck!


Your fears of bring served a summons even though you have hired a debt settlement firm are entirely justified.

Debt Settlement firms are - to a large degree - a joke. I have represented many people who have ended up filing bankruptcy because a "debt settlement firm" actually made things worse for them. The firms will tell you anything to get your money. They'll tell you that debt settlement is a good option because it's better for your credit rating (which is not true). They'll tell you that this is a more cost effective way to pay your debts 'in full' (again, not true). What they will not tell you is that creditors do not have to participate or settle (and usually won't). They will not tell you about your exposure to increased tax liability because of the forgiven debt. And they will not tell you precisely how they are protecting your interests - and preventing some debt buyer from surfacing years later claiming they are entitled to full payment on the debt.

On my blog, I've written a lot about these firms. You'll find the link to some of those articles below.

Do your research. Do what's good for you and your family based on your unique situation. Stay away from these debt settlement firms.

Good luck!

Bill McLeod


In many cases, filing for bankruptcy actually hurts your credit score LESS than what happens after the debt consolidation companies are through.

This does not mean that I think everyone should file for bankruptcy. I'm glad that you feel a personal responsibility in paying this debt. Generally speaking, if you owe more than you make in a year, you're essentially bankrupt anyways. Do you and your husband combined make more than $35K?


Great info on the previous posts. Sounds to me like you want to be responsible and pay your bills. A Chapter 13, where you pay over a period of about 5 years may afford you that opportunity. Statistically though many people that file a 13 end up doing a 7 because the debt is still just too overwhelming. Same with debt consolidation for that fact.

Run to a bk attorney as fast as you can. If the creditor calls are getting out of hand than an emergency petition may provide the automatic stay which would take care of these calls. As far as the FTC they are dealing with a ton of these complaints on daily basis and so I wouldn't expect a response any time soon. Talk with an attorney and she/he will probably provide help immediately.