If you are over your head in unsecured debts like credit cards, you may be tempted to pay a "debt consolidation" company to discount and get rid of your debts. Beware! I see many people who have paid these companies and have gotten no help. Some of these people have gotten sued by their creditors even while they are paying their debt consolidators. Then they come to me and file bankruptcy, which actually does get rid of their debts, but they've already wasted thousands of dollars paying debt consolidators.

Unfortunately, there are many dishonest debt consolidation companies. In my experience, most of these companies do not provide any benefit to debtors, but I haven't studied this and cannot say for sure what percentage of these companies are ripoffs and what percentage are honest. I think, however, it's fair to say that there are a large number of dishonest debt consolidators, even if most of them are honest.

Even honest debt consolidators collect money from debtors for many months but don't pay anything to creditors until they've accumulated a big pile of money from the debtors' monthly payments. They negotiate the debt with the creditors, reducing it by whatever amount the creditors will allow. Once they have the full amount owed agreed upon, they pay the creditor. The problem for the debtor is that the debt consolidator has not paid the creditor while collecting money from the debtor, and the creditor continues with its collection efforts, including harassing phone calls and letters, many times ending in a lawsuit against the debtor. And, of course, the debtor is also paying the debt consolidator a fee for this, so that the monthly payments to the consolidator do not all go toward paying off the debts.

Chapter 13 bankruptcy is a much better way to consolidate and get rid of your debts. This type of "debt consolidation" is run by the government, through the bankruptcy courts and trustees, so the chances of getting ripped off are practically zero. So long as you make your monthly payments to the chapter 13 trustee for the life of your plan, your dischargeable debts will be eliminated ("discharged"). Furthermore, filing a bankruptcy stops all collection actions against you by law, and you don't have to negotiate with your creditors. Of course you would still pay a fee to your bankruptcy attorney, but at least you would get something valuable in return.

For unsecured debts like credit cards, a chapter 7 bankruptcy would be even better for you. In this type of bankruptcy, you pay nothing to your unsecured creditors and all of your eligible debts are discharged. If your disposable income is low enough to qualify you for a chapter 7 bankruptcy, this is definitely your best choice unless you would not get another benefit by filing a chapter 13.

If you are considering paying a debt consolidator, contact a bankruptcy attorney for a free consultation instead. It will probably save you a lot of money and keep you from getting ripped off!