Advertising messages offering to help people get out from under are over-the-top these days. In one of my very earliest bankruptcy blogs, Looking For Help In All The Wrong Places, I wrote about debt settlement agencies and credit counseling agencies, cautioning debtors not to snatch at straws in an attempt to avoid filing bankruptcy.

By way of quick review, debt settlement agencies have clients pay them money every month to be deposited in a trust account.  The agency then attempts to work with creditors and work out an arrangement for a reduced lump sum payoff.
Credit counseling agencies offer education about good financial habits, in addition to negotiating with creditors. In my blog, I cautioned that the IRS and other enforcement agencies had uncovered many instances of abuse in the area of debt settlement and credit counseling.

But, even if debt help agencies are true non-profits and truly above-board in their dealings, there is no guarantee of concessions from the creditors, and while the settlement or counseling process is going on, interest and penalties continue to accumulate on the clients’ debts!  My experience tells me that very often people grasp at these offers and postpone facing up to their problems and taking steps to turn things around.

A third category of help offered to debtors is called “credit repair”.  It’s interesting that, just last month, In Consumer Bankruptcy News, I read about a crackdown by the Federal Trade Commission targeting 33 credit repair businesses that had made false promises to consumers, guaranteeing to remove bankruptcies, judgments, slow pay history, repossessions, and collections from people’s credit reports. Some companies claimed to have special relationships with every credit bureau and public records provider. In many instances, the defendants had taken debtors’ money in the form of a monthly fee withdrawn from clients’ bank account, without providing any services   Requests by customers to end the service and refund the fees were denied.

Is credit repair a scam by definition?  Not at all.  For years, Indiana consumers have been served by Momentive, a non-profit organization. On Momentive’s website is the clear statement, “Credit repair clinics cannot remove correct information from your credit report.”

As a bankruptcy attorney, I never deal in absolutes, or claim that bankruptcy is the one solution for all situations. The reason I get on “my soapbox” about debt consolidation, credit counseling, or credit repair companies is simple – time.  Time is the enemy of debtors, because when late fees and penalties are piling up, and creditors are calling them at home and at work, it’s crucial that these debtors obtain legal advice without delay.