Debt Relief/Budget Planning Companies:
The terms "debt relief," "credit card relief," "budget planning," "debt negotiation," "debt forgiveness," and "debt consolidation" are too often used by dishonest companies as a way to separate you from your money. In New York, all of these services are considered "Budget Planning," no matter what they are called.
If you do an Internet search of "debt consolidation" you'll get more than 9 million results. This is unfortunately one of those areas where there are lots of people and companies ready to take advantage of your situation. Be very careful of any company that:
- promises that they can get your credit card companies to reduce the amount you owe, and
- recommends that you don't pay your current debts, and
- ask you to pay their company instead with the hope that they will renegotiate your debt.
Because of this danger, New York State passed a law which requires anyone who provides Budget Planning services (with some exceptions) to be licensed by the New York State Banking Department. &nbsb; The exceptions are not-for-profit companies and attorneys licensed to practice in New York.
To protect yourself:
- You can easily check to see if a company you are using, or thinking of using is licensed by the New York State Banking Department.
- You can check to see whether a Corporation is a not for profit corporation in New York by checking the Secretary of State database. In addition to the company itself being not-for-profit, stay away from companies that want you to sign agreements that use other companies unless they too are not-for-profit or licensed by the New York State Banking Department.
- You can check to see whether an attorney is admitted to practice in the State of New York by checking the NYS Unified Court System database. If an attorney is going to hold money for you that is to be used to pay off your debts, that money MUST be placed in that attorney's escrow account. The attorney is subject to strict discipline if the escrow money is not properly used and if an attorney misused escrow funds the client might be entitled to reimbursement from The Lawyers' Fund for Client Protection.
There are also many things you can try yourself: Top of Page
Debt Consolidation Loan:A debt consolidation loan a single larger loan that you use to pay off all of your other debts. Ideally the larger loan has a lower interest rate than the smaller debts, such as credit cards, thus making it easier for you to pay off your debt. A debt consolidation loan can be secured by a mortgage on the equity in your house or as a lien against other assets, such as a car, stocks or even your retirement account (often the best source for a one time consolidation loan). In order for a debt consolidation loan to truly work, you need to change your spending habits and ideally to get rid of the credit cards themselves.
For a debt consolidation loan, you don't actually need any outside company's help. If you have equity in your home, you can go to a normal mortgage company or bank. If you have a retirement account, such as a 401K, Keogh, SEP, etc., which allows you to borrow money, you can contact the plan themselves. This type of loan usually has very low interest and as you pay it back most of the interest goes back into your retirement account.
If there is to be a negotiation with your credit card companies or other debtors, you can do that yourself. If you don't feel comfortable doing it yourself, again consult approved debt counselors. Other companies may offer you greate results, but unfortunately some people later discover they were ripped off. Top of Page
If your financial condition is the result of high credit card debt or other personal debt, even filing for bankruptcy or getting a debt consolidation loan may only give you temporary relief. Studies show that persons who file for bankruptcy or use debt consolidation loans to pay off high credit card debt will eventually end up in the same position after their bankruptcy or debt consolidation because they will follow the same spending habits. To break this cycle, it is a good idea to get "debt counseling".
Since 2005 you are required to attend a credit counseling session with an approved credit counselor before you could file for bankruptcy. These credit counselors must be approved by the Federal Bankruptcy Court and are different than the credit counselors or budget planners which are approved by New York State Banking Department. The following is a list of approved counselors for the Southern District of New York (the District which covers the Bronx). The cost of the counseling is normally about $50. If you cannot afford to pay that amount, you can apply for a waiver of the fee.
An approved Credit Counselor may be able to help you set up a budget where you can both get out of your current debt and keep from getting back into debt in the future. Be very wary, however, of businesses which make big promises but are not on either the Bankruptcy Court approved list or New York State Banking Department licensed list.
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The single biggest reason for someone to file for a bankruptcy is getting hit with a huge hospital bill not fully covered by insurance. You may, however, be able to negotiate some sort of deal with the hospital or medical provider. See the section on fighting a hospital or medical bill. If you explain to the hospital that absent an agreement you will litigate the matter, fight the charges and eventually file for bankruptcy, they are likely to get serious about negotiating your debt. It's not unusual for them to take as little as 10% or 20% off the debt as their bills for uninsured patients are often very inflated.
Negotiating with credit card companies: Most credit experts will tell you that for your credit card company to be willing to discuss settling your balance for less than you owe, it is best to not make payments for several months. If the credit card company sees that you are able to make even minimum payments every month, they're going to be less willing to take less than you owe.
If you adopt this strategy, make sure that you place the money you would have paid in a separate account so that you have money available to try to settle the debt. Many companies that offer this type of service to you will recommend that you pay that money to them. Be very careful about entering into that type of an agreement with anyone other than an approved credit counselor, not-for-profit organization or at attorney licensed to practice in the State of New York. If you make that agreement with an attorney, for example, and the attorney takes your money instead of using it to pay your credit cards, you may be entitled to get some or all of it back through the Lawyers' Client Security Fund.
If you want to negotiate directly with your credit card companies, follow the steps below. You may be surprised at how easy it is to get results.
- First when you call the credit card company ask to speak to a supervisor. Tell the person that you're speaking with that you will not be able to make your payments and you'd like to see if some arrangement can be made before having to file bankruptcy. The biggest threat to the credit card company is filing bankruptcy. Bankruptcy will stop them from all collection activities and they will either get pennies on the dollar in a Chapter 7 bankruptcy or have to wait for as much as five years to get fully paid without interest in a Chapter 13 Bankruptcy. In today's economic climate, any dollar that they can collect today is worth many times more than what they might collect in a few years.
- Don't be discouraged if the first few people you speak to say that there's nothing that can be done. Constantly asked to speak to their supervisor explaining that your situation is desperate and that the only choice they are leaving you with is bankruptcy.
- If you still get no response from your phone calls, use the following xxxx sample letter and send it directly to the CEO of your credit card company. You can locate the name and address of the CEO of most companies by searching for their stock information at Yahoo finance. Enter the name of your credit card company from your statement and click on "get quotes." From the company's page, click on "profile" on the left. Look under "Key Executives" on the right side of the page for the "Chief Executive Officer" which is the CEO or the "Chief Operating Officer" which is the COO. Do an Internet search of that person with the name of the company and you should be able to quickly find his/her address and fax number. You can also call the company directly and ask for his/her address and fax number.
- In order to get a credit card company to waive any portion of your debt or to give you zero or low interest rates while you pay back your debt, you are going to have to give up the credit card itself. If you have one credit card that has a small or no balance, try to keep that credit card just for emergencies. Do not look at it as a way to get things that you want now and believe you will be able to pay for later. Use it only in the event that you have no other choice.