Reaffirmation Agreements

SUMMARY:

1. If you cannot make the payments, they will take your car away from you.
2. If you DO sign a reaffirmation agreement in your bankruptcy case then you default on your payments and they take it away from, they will SUE afterwards. You will owe them the difference between what they sold the car for and the amount you owed. This is called a deficiency.
3. If you do NOT sign a reaffirmation agreement, then you default on your payments, they will take it away and they can NOT sue you afterwards.
4. If you do NOT sign a reaffirmation agreement, then even if your payments are current, they can repossess it anyway.
5. But currently only Ford, Jaguar, SDCCU and California Coast Credit Union have stated that they will take it away if you don't sign a reaffirmation agreement even if you are current with your payments.
6. But there is no reason to believe that the other banks and credit unions can not or will not change there minds some day.

A Reaffirmation Agreement is a new promissory note to keep paying on an old contract for the purchase of goods where the lender can repossess or foreclose the goods. Because you have signed a security agreement the lender has the right to repossess or foreclose if you do not pay for it.

Chapter 7 bankruptcy discharges your personal obligation to pay the loan, or in other words, you no longer have to legally pay on the note. However, the lender still has a lien on the object(s) in question. Jewelry, refrigerators or large appliances, and most notably cars can be repossessed in this way.

What a reaffirmation agreement does: It allows you and the lender to agree that you may keep the goods so long as you continue to pay for them. When executing a reaffirmation agreement with the lender sometimes the lender will reduce the balance owing, the interest rate or both. As a result the payment and term can be reduced.

Nowadays most lenders will not reduce the interest rates and balances on cars. Home mortgages never do. You can often reduce the balance and interest rates on appliances, jewelry, computers and motorcycles. However, on goods such as appliances, jewelry & computers, you only need to agree to pay back the fair market value (FMV) of these items.  You and the lender, however, must agree on the FMV. They also cannot collect or include in the reaffirmation agreements things such as tax, delivery charges, etc.  Plus, all the payments you have already made must be credited towards the balance owed.  Do not sign a reaffirmation agreement that asks for the full original contract price to be paid back.

If you do sign a reaffirmation agreement, you will have 60 days to change your mind and rescind it. Rescissions must be in writing, served on the creditor and preferably filed with the court.

The Court must approve the reaffirmation agreement.  If the Court does not approve the reaffirmation agreement then the creditor cannot repossess that property as long as you are current with your payments.

CARS AND VEHICLES

Legally, WITHOUT a reaffirmation agreement the lender can repossess your car, even if the car payments are current. However, at this writing, the only companies who do are Ford Motor Credit & Jaguar Credit & California Coast Credit Union. I cannot promise that other companies will not change their policies and begin behaving like Ford. Most Importantly, without the reaffirmation agreement, the lender CANNOT collect a deficiency against you if they do take the car.

WITH a reaffirmation agreement, as long as the payments are current, then they cannot take the car just as before the bankruptcy. However, just as before the bankruptcy, if you get behind in payments they will take the car AND sue you for a deficiency balance.

If you get behind, WITH or WITHOUT a reaffirmation agreement, they will definitely repossess the car. The main question to me is whether or not you can afford to make the payments or is the car so far upside down that you would be better off getting a new/different car and not owe so much money?

So, if you just keep making the payments and don't worry about it, you have a great probability of nothing changing, and eventually once the vehicle is paid off, they will still have to give you the pink slip.

If you sign and file a reaffirmation agreement, and then change your mind, you have 60 days to do so in writing and it must be in writing, signed and filed with the court.

HOWEVER, if you do sign a reaffirmation agreement and turn it into the court, and if the bankruptcy judge denies the reaffirmation, or in other words does not approve it, then as long as you keep making the payments on the car, thenthe lender cannot repossess it.

MORTGAGES & REAFFIMATION AGREEMENTS

You would never reaffirm a mortgage. Never. Seldom but sometimes a mortgage lender will tell a client that the client's post bankruptcy mortgage account would show up as good credit on their credit report if the client had just done a reaffirmation agreement. It's all the bankruptcy attorney's fault that the client's credit is not better than it is right now because he didn't tell the poor client to reaffirm the mortgage. DON'T BELIEVE THEM!

Most mortgage companies will not do this to you, just a few. Ones that do are unscrupulous and are aiming to get you to sign your life away. They want you tied to that mortgage through the reaffirmation agreement come hell or high water. If they can just do that, then if you foreclose, maybe they can sue you.

Because we do not have a crystal ball, and because the length of the term of a mortgage is so long, we NEVER sign a reaffirmation agreement on a mortgage. This is the industry standard.

If you have any questions, please feel free to call me. I go over in detail, at no extra charge, with my client's regarding whether or not to sign a reaffirmation agreement.

Using Credit Cards Prior to Filing Bankruptcy is a Big No No!

Luxury credit card purchases of $600 or more and made within 90 days of filing bankruptcy are presumptively non-dischargeable.

Most credit card debts are eliminated by filing for bankruptcy. But be aware: credit card charges racked up on the eve of filing might not be dischargeable in bankruptcy. If you're looking for a simple rule that will make your life much easier, it's this: don't use credit cards before filing bankruptcy, especially 90 days prior to filing. Under section 523 of the Bankruptcy Code, luxury credit card purchases totaling $500 or more and made within ninety (90) days before filing bankruptcy are presumed to be non-dischargeable in bankruptcy.

Debts incurred at any time prior to filing may not be dischargeable if a creditor can prove that the debt was incurred with no intention to pay. Section 523 goes on to carve out cash advances of over $875 within 70 days before filing as presumably non-dischargeable as well.

Large luxury purchases and cash advances right before bankruptcy are considered likely fraudulent. So, if you have gone out and purchased a flat screen TV or expensive sports equipment or a new sofa on credit and now want to file bankruptcy, be aware that a lawsuit from your credit card company objecting to your discharge may very well follow.

What was your "state of mind" when you made the purchases?

Make sure your bankruptcy attorney knows about all purchases of $600 or more you've made on credit cards. He or she will likely advise that you delay filing bankruptcy until the 90 day presumption period has passed. After all, it is possible for well meaning debtors to purchase items on credit not knowing they'll soon be forced into bankruptcy. If this sounds like you, talk to your attorney to make a plan, but don't get too worried. If you didn't purchase the items knowing you'd be filing bankruptcy, or after meeting with a bankruptcy attorney, you've done nothing wrong. If, however, you purchased items knowing that you'd soon be filing bankruptcy, well that's criminal bankruptcy fraud, which is a whole different story.

As a general rule, your credit card company won't have much to complain about if you've recently purchased necessities, such as diapers or food on credit cards and soon after file bankruptcy. Although, using high balance credit cards to purchase the bare necessities can be evidence of financial distress sufficient for a bankruptcy, these small purchases do not give creditors a built in objection to your discharge as if you'd made a $600 or greater luxury purchase. The real problems begin when you purchase luxury items.

A comparative analysis of debt settlement and bankruptcy

Millions of consumers are crushed under the burden of debt after the recent economic depression in the US. In such situation, people rely on debt settlement program or file bankruptcy the last resort for debt relief. These two debt relief plans help people to start their financial life afresh. But before you select a debt relief program it will be essential to understand the both the programs. A comparative analysis between debt settlement and bankruptcy can help you take the right decision.

What is the function of debt settlement and bankruptcy?

The functions of these two programs are completely different from each other. Debt settlement is a repayment plan where the debtor pays less than he originally owed to the creditors. You are required to negotiate a settlement with the creditors to lower the interest rate on the principal balance. The amount you payback is entirely up to the creditors. But on declaring chapter 7 Bankruptcy your debt will be completely discharged. Meaning you will not have to pay any of it back. But in chapter 13 bankruptcy the amount you payback will be determined by how much "net disposable" income you have. The monthly payment will be reduced by an extended repayment plan, usually 36-60 months.

A closer look at the debt settlement procedure:

Debt settlement is a simple debt reduction method that will help you attend financial liberation. In order to settle your debt you can hire the services of a debt settlement company or you can settle your own debt. The experts negotiate with the creditors on your behalf to lower the interest rate on the outstanding balance. The creditor and debtor needs to give mutual consent on the settlement offer before the beginning of the repayment plan. But you need to default on your payment for 2 to 3 months before you negotiate with the creditors. Therefore, your credit score might drop initially but it will eventually increase again.

Know how the bankruptcy process works:

Bankruptcy is a legal procedure where a petition needs to be filed in the bankruptcy court to discharge your debt. You can avoid creditor harassment & any collection procedures if you file bankruptcy. You need to complete a credit counseling session before filing a petition in the court. The procedure of chapter 7 bankruptcy will be completed usually within 4 months whereas it will take 3 to 5 years for the completion of the repayment plan under chapter 13. You can discharge your unsecured debt by filing bankruptcy but the stigma of bankruptcy remains on your credit report for 7 to 10 years. You should also understand that using a debt settlement procedure will also affect your credit the same as filing bankruptcy does.

Comparing the expenses involved in these two programs:

When you hire the services of a debt settlement company they will charge a fee for providing with its services. The company will also charge a percent of the amount saved after successfully negotiating your debt. When you file bankruptcy petition in the court you are required to pay a filing charge, currently $299.00 for a chapter 7 & $274.00 for a chapter 13. The attorney will also charge a fee to represent you in the bankruptcy.

Therefore, you can now analyze your financial situation and take an appropriate decision whether to filing bankruptcy or opt for debt settlement is best for you. Please read the other articles on my blog for further information regarding debt settlement/negotiation.

Discharging Student Loans-Not As Easy As It Sounds

It is a harsh reality of today's post-collegiate environment - two-thirds of all students now graduate with burdensome debt that can follow for many years to come. Following a recent news story on CBS Evening News, a comment was made that a student CAN have their federal student loans discharged in a Chapter 7 bankruptcy IF it is found that repayment of the loan would impose a hardship on the borrower. If only it were that easy...

Discharging private student loan debt in bankruptcy currently requires a showing of "undue hardship," a standard too often difficult to prove and very rarely met. The website FinAid estimates that less than 1% of private student loan borrowers in bankruptcy attempt to seek a hardship discharge of that obligation, and less than half of those people are successful.

Courts typically refer to the following three requirements that a person must meet to qualify for undue hardship to receive a discharge of their student debt:

First, the debtor must not be able to both repay the student debt and maintain a minimum standard of living based on his or her current income and expenses.

Second, these financial difficulties must persist for a substantial portion of the student loan repayment period. Borrowers need to show exceptional circumstances such as a disability or the need to care for a dependent.

Third, the debtor must have made good faith efforts to repay his or her student loans. The court will look to see what legitimate actions the debtor took at least to attempt to repay his or her student loans.

What Can Bankruptcy Not Do?

Bankruptcy cannot cure every financial problem. For example, it usually cannot eliminate the rights of "secured" creditors, those creditors who have a mortgage or lien on your property as collateral for loans, such as car loans and home mortgages. You usually cannot keep property subject to a security interest unless you continue to pay the debt; however, bankruptcy can require secured creditors to settle for installment payments and can also eliminate your obligation to make any additional payments if your property is repossessed.

A bankruptcy cannot discharge certain types of debts, including:

*some debts incurred within 180 days prior to filing bankruptcy-( usually must be proven through an adversay case brought by the creditor)
*child support
*alimony
*court fines, penalties & restitution
*some taxes, especially those accrued within the past three years
*loans obtained through fraud-(proven through an adversary case brought by      the creditor)
*student loans owed to a school or government body unless payment would be an undue hardship-(only proven through an adversary case brought by the Debtor)
*Discharge debts that arise after bankruptcy has been filed
*Protect co-signers on your debts. When the primary debtor on a co-signed loan discharges the loan in bankruptcy, the co-signers may still have to repay all or part of the loan.

Needless, to say, this is NOT an all encompassing list of what type of debts may not be dischargeable in bankruptcy.  If you have any questions concerning whether a debt may or may not be dischargeable call the Law Office of Mark A. Reed, 858-277-0232

Altered Ego: New Ninth Circuit Opinion Overrules Previously Well-Settled Law Regarding Exclusive Standing Of Bankruptcy Trustees To Pursue General Claims On Behalf Of The Estate

On October 21, 2010, the Ninth Circuit overruled what many thought to be well-settled law, and held that a bankruptcy trustee does not have standing to pursue alter ego claims, at least in cases governed by California law. The court first held that California state law does not recognize a general alter-ego cause of action that allows an entity and its equity holders to be treated as alter egos for purposes of all of the entity's debts. As a result, the court found that bankruptcy trustees (or debtors-in-possession) do not have standing to bring such a claim on behalf of a bankruptcy estate, even if the claim affects all of the bankrupt entity's creditors.

The opinion, Ahcom, Ltd. v. Smeding, 2010 WL 4117736 (9th Cir. 2010), overruled at least two other opinions, one entered in California Central District Bankruptcy Court and another entered by a Ninth Circuit Bankruptcy Appellate Panel, both of which held that trustees had the right - and the exclusive right - to bring general alter-ego claims on behalf of the estate when no particular injury was shown to a specific creditor. Both of the overruled opinions relied on a California state court case, Stodd v. Goldberger, 73 Cal. App. 3d 827 (1977), for the proposition that California recognized a general alter-ego claim.

The Ninth Circuit decision found that the other courts had misread Stodd, which the Smeding panel interpreted to mean that a trustee can only bring certain causes of action that directly injure the bankrupt entity, such as fraudulent transfer, conversion and theft, while it cannot bring others because a trustee is not an appropriate general representative of all creditors.

The relatively brief opinion in Smeding may have consequences in bankruptcy cases.

First, the decision may lead to an increase in alter-ego claims by creditors dissatisfied with the progress of, or their treatment in, a Chapter 11 case. These creditors may bring these types of claims against the debtor's principals to gain leverage in their attempts to alter the course of a bankruptcy proceeding or their treatment in it. Debtors may be able to delay such tactics with a Section 105 injunction, but that will only temporarily solve the problem, at least in the Ninth Circuit.

Second, the Smeding decision may mean that it is no longer possible to eliminate alter-ego claims through a release contained in a reorganization plan or in a settlement agreement between the estate and the principals (or other alter ego targets), since the estate is not the holder of the claims. Parties wishing to resolve alter-ego claims in the context of a Chapter 11 plan may be forced to resort to more creative solutions, such as the filing of a class-action alter-ego lawsuit by a creditor, which is then settled in the class action pursuant to class action rules concurrently with plan confirmation.

Third, bankruptcy trustees (and debtors-in-possession) in the Ninth Circuit may be limited to only three categories of claims they can pursue: (1) claims that the debtor could have brought outside of a bankruptcy proceeding and which are therefore property of the bankruptcy estate, (2) avoidance claims of creditors under applicable non-bankruptcy law, which the trustee may pursue under Section 544 of the Bankruptcy Code, and (3) claims specifically created by the Bankruptcy Code, such as preference actions (Section 547), fraudulent transfers (under Section 548) and unauthorized post-petition transfers (Section 549).

RECENT CASES AND DEPARTMENT OF LABOR RULINGS
PUT SOME IRA PLANS IN DOUBT AS TOTALLY EXEMPT IN BANKRUPTCY

To be exempt in bankruptcy, the IRS must comply with Tax Code
regulations ... and many do not satisfy these regulations!

The circumstances in the two cases cited below appear to
relate to retirement programs more likely associated with
self-employed individuals than the more typical wage-earner
employer funded IRA.  This is a very important distinction.

HELD: IRA NOT EXEMPT BECAUSE OF NUMEROUS
FAILURES TO COMPLY WITH IRS CODE
In re Daniels ___ B.R. ___ (Bankr.Mass 2011)

In this case the Chapter 7 trustee challenged the debtor's
claim of exemption of funds in a profit-sharing plan and an
IRA.

The court held that the debtor's handling of the plans failed
to compy with applicable IRS regs and accordingly were not
valid under the IRS Code, and therefore not exempt per 11
U.S.C. § 522(b)(1) et seq. The requirements differ
depending on whether the IRS has issued a "favorable
determination letter." In this case, the funds failed to qualify
under either option.

The debtor and his family were actively involved in
managing the funds. Among other things, the court found:

• The debtor managed the funds for his own benefit;
• Transferred non-exempt funds from the profit-sharing plan

to the IRA;

• The fund never received a Favorable Determination Letter;
• Conducted prohibited transfers of funds to a disqualified

person;

• Rented real property to a family member, a prohibited act;
• Loaned funds to his daughter, a prohibited act;
• Invested Profit-sharing funds into a business venture in

which the Debtor had also individually invested.
The IRS prohibits such conduct between the fund and a
disqualified person. Among the disqualified persons are
"fiduciaries."
"A "fiduciary" is defined as any person who:
(A) exercises any discretionary authority or discretionary
control respecting management of such plan or exercises
any authority or control respecting management or
disposition of its assets,
(B) renders investment advice for a fee or other
compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority
or responsibility to do so, or
(C) has any discretionary authority or discretionary
responsibility in the administration of such plan.

Additionally, "Prohibited transactions" include the following:
(A) sale or exchange, or leasing, of any property between a
plan and a disqualified person;
(B) lending of money or other extension of credit between a
plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan
and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified
person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby
he deals with the income or assets of a plan in his own
interests or for his own account; or
(F) receipt of any consideration for his own personal
account by any disqualified person who is a fiduciary from
any party dealing with the plan in connection with a
transaction involving the income or assets of the plan.
the Debtor has admitted that he routinely used the funds in
his retirement account to enrich the interests of his family
and other disqualified persons, and it is evident from these
admissions that executing taxable "prohibited transactions"
was the routine manner by which he managed the assets
held in his Profit Sharing Plan. Furthermore, having actively
managed the affairs of the plan as employer, manager, and
trustee of the Profit Sharing Plan, the Debtor was materially
responsible for the failure of the plan to be in substantial
compliance with applicable tax law. The Debtor has abused
the profit sharing plan form and the consequence is that the
funds held therein may not be exempted from the
bankruptcy estate.

ANOTHER CASE - SIMILAR ISSUES - SIMILAR RESULT
HELD: IRA NOT EXEMPT BECAUSE OF EXTENSION OF
CREDIT BETWEEN FUNDS
In re Willis __ B.R. __ Bankr. S.D.Fla. 2009)

In this case the debtor's IRA did receive an IRS Favorable
Determination letter. Nevertheless, the court found the IRA
not exempt.

"The issue before the Court is the propriety of Mr. Willis'
claims of exemptions for the full value of the Merrill Lynch
IRA, the Fidelity IRA, and the AmTrust IRA pursuant to §
522(b)(3)(C)."

"Movants argue that Mr. Willis is a disqualified person who
engaged in prohibited transactions, the effect of which was
to disqualify the Merrill Lynch IRA for exemption from
taxation, and consequently disqualify the IRA from
bankruptcy estate exemption under § 522(b)(3)(C).
"Movants contend that Mr. Willis engaged in prohibited
transactions under § 4975 when: 1) Mr. Willis borrowed and
used funds from the Merrill Lynch IRA to acquire assignment
of the Ocean One Property Mortgage from Southwest, 2) Mr.
Willis borrowed funds from the Merrill Lynch IRA in order to
engage in a check- swapping scheme to cover a shortfall in
the Joint Brokerage Account, and 3) Ocean One borrowed
funds from the Merrill Lynch IRA to acquire the Ocean One
Property Mortgage from Southwest.

"Under § 4975(c)(1)(B), any direct or indirect lending of
money or other extension of credit between a plan and a
disqualified person constitutes a prohibited transaction. In
this case, Movants presented evidence at trial that Mr. Willis
borrowed funds from the Merrill Lynch IRA to purchase the
assignment of the Ocean One Property Mortgage from
Southwest.

"In December 1993, Mr. Willis withdrew $700,000 from the
Merrill Lynch IRA to purchase the assignment of the Ocean
One Property Mortgage. On or about February 22, 1994, Mr.
Willis returned $700,000 into the Merrill Lynch IRA.
"Consequently, the Court finds that Mr. Willis engaged in a
prohibited transaction under § 4975(c)(1)(B) by borrowing
$700,000 from the Merrill Lynch IRA to acquire the
assignment of the Ocean One Property Mortgage from
Southwest.

"Therefore, as a result of Mr. Willis' prohibited transaction
under § 4975(c)(1)(B), the Merrill Lynch IRA ceased to be
an exempt IRA under § 408 of the IRC as of January 1,
1993.

"For the reasons stated above, the Court determines that
the following funds are not exempt from the bankruptcy
estate under § 522(b)(3)(C): 1) all funds in the Merrill
Lynch IRA, 2) all funds in the AmTrust IRA, and 3) $60,000
in the Fidelity IRA.

The court also cited In re Hughes 293 B.R. 528 (Bankr.M.D.
Fla. 2003) " ... concluding that debtor's IRA was not exempt
from the bankruptcy estate because debtor engaged in a §
4975(c)(1)(B) prohibited transaction by withdrawing
$27,000 from his IRA to lend to a corporation for which he
was the principal and subsequently returning the funds to
the IRA)"; and Zacky v. Comm'r, 2004 WL 1172874 (T.C.
May 27, 2004)(determining that a § 4975(c)(1)(B)
prohibited transaction occurred when disqualified person
caused plan to loan funds to companies for which he was
the president and sole shareholder."

To make sure your IRA is totally exempt in Bankruptcy it is best to speak with a bankruptcy attorney.

CAN BANKRUPTCY REMOVE MY SECOND MORTGAGE/LIEN?

Short Answer: YES-but only in a Chapter 13 If you own real estate with a second or other subsequent mortgage chances are you can remove that lien in a Chapter 13 Bankruptcy Case. This is most common these days as a result of the declining real estate market. In many instances, at least locally in San Diego County, we are seeing real estate values decline dramatically. With real estate declining as much as it has, most second and other mortgages beyond the first are wholly unsecured.

In fact, in many cases, even the amount owed on the first deed of trust/mortgage on the property is greater than the value of the house. So how can you avoid a second lien on real estate? It's through a code provision in Chapter 13, 11 USC 1322.

For example: Suppose a debtor purchased a home at the top of the market for $700,000.00. They purchased the house with a $500,000 first deed of trust and a $200,000 second deed of trust . Suppose now the house has depreciated and is now worth $490,000. Since the second deed of trust of $200,000 is not secured by the real estate anymore, it is considered "wholly under secured." In chapter 13, you can "avoid" a "wholly under secured" lien on your personal residence. Thus, if one were to "avoid" the lien, then they would now have a house valued at $490,000 with only a first deed of trust for $500,000. The $200,000 second was "stripped" from the property and is treated as an unsecured creditor in the chapter 13 case no different than a credit card and would be paid back at the same percentage one is paying back unsecured creditors as set out in one's Chapter 13 Plan.

The one "catch" is that while you file your motion to strip the lien shortly after you file the case and the court grants the motion, the lien is not officially taken off your property until you complete the plan by making all the payments over the 3-5 year period. If you do not complete the plan payments then the order stripping the lien is void and the lien will remain on your property.

You no longer owe the $200,000 on the house. While lien stripping is most common on under secured mortgages, there are also several other ways to avoid second mortgages in Bankruptcy. Other examples of lien stripping can take place if (1) there is a balloon payment due during the life of the chapter 13 case; (2) the second is secured by other assets in addition to the house (personal property, etc.); and, (3) the property is not the "debtor's principal residence." So while many people are starting to surrender their real estate back to the bank, think twice before you make your decision and speak with a competent bankruptcy attorney. You just might be able to remove the second mortgage and keep the house with a more affordable mortgage payment! Not only might this make the payments more manageable, which just might allow you to stay in the house, it will also make it much easier to eventually sell. Hopefully when the real estate market turns around and allows you to realize a profit from the sale.

For any further questions please feel free to call the Law Office of Mark A. Reed, 858-277-0232

DEBT NEGOTIATION-BEWARE OF SCAMS

Before you sign up for any debt negotiation services, you need to know all about this. If you think it is the same as some debt management plan or credit counseling, then you are mistaken. The reason you need to take care before going for any such plan is that it can affect your credit rating.

Let us have a look at the claims that these companies usually make. They will promise you that they will negotiate with your creditors and as far as your unsecured bills are concerned, they will get you a discount of somewhere between 10 and 50 per cent.

You will often see them advertising as being an option to bankruptcy. They will also claim that your credit rating will not be affected in any way if you use their services. They will often arrange for you to make payments to them instead of your creditors, under some debt negotiation program.

While they will make many big claims, the truth is somewhat different. Now, you will often see them label themselves to being non profit. This label alone is not enough to ensure their being legitimate. Besides, no one can guarantee that any lender will accept only a part of a legal debt. The truth is that if you stop your payments to your credit cards, you will actually incur late fees as well as added interest and charges.

Meanwhile, if you happen to go over your limit, then all the additional charges and fees will also come along. If you know enough about credit cards then you will know that all this alone can cause your debt to become two or three times its original size.

In addition to these fees, you will also be required to pay fees to the debt negotiation companies in the name of service charges, signing up charges and finally, a predetermined percentage of any savings that you will allegedly make.

While sometimes creditors do humor such negotiation deals, they are not under any obligation legally to do so. Hence, no one can promise any results from negotiation. On the other hand, you might actually end up doing more harm for your credit rating than doing good.

In fact, if you stop making payments to your lenders, they can even sue you. Hence, it is better to understand the lies of such debt negotiation companies before you bear their consequences.

You should stay miles away from debt negotiation firms that will promise to get rid of your unsecured debts, require you to pay quite a big monthly fee, demand a percentage of any savings you make. Instructing you to stop making payments to your lender, should also be a red signal for you.

If you do want to seek help from any such company then you should at least check it with the Better Business Bureau or with the state Attorney General.

Most of the time they are unable to negotiate substantial reductions in the amount consumers owed. And as the result of purchasing defendantś debt negotiation services, consumerś credit ratings suffered, their total debt increased, and that some consumers even became the target of legal action.

In fact, experts say there is no guarantee that debt settlement companies can persuade a credit card company to accept partial payment of a legitimate debt.

Yoúve probably seen lots of tempting ads on TV (or heard them on radio) that promise to erase your debt for pennies on the dollar. Before getting involved with any debt negotiation agency, be sure to research the firm with your state Attorney General and your statés consumer office.

One client recently asked:

There has been an increase in advertisements for debt negotiation agencies that are different from debt consolidation. They state that they can negotiate your debts down rather than consolidate. I already checked with a reputable consolidation agency and the consolidated monthly payment is more than my combined monthly minimum payments which I cannot afford. Are these debt negotiation agencies a viable alternative or a sham? Are most debt negotiation agencies really a way to scam good people out of their money? My vote would be that a debt negotiation agency is more likely a scam, but there may be some good ones out there. The FTC has closed down many of them because instead of helping consumers pay off their bills, theýve driven them to bankruptcy. Often the FTC works with the state attorney general in bringing these cases. Herés how most of the scams work:

Theýll ask for money upfront as a retainer (most of that goes to the telemarketer who signed you up)
They ask for a list of your creditors and total amount of your debt.
They usually asked for monthly administrative fees of $30 to $40 a month and theýll take a percentage of what they save you.
They tell you to stop paying your creditors because then they can make a hardship case for you.
They tell you to put the money you would normally pay your creditors into an account and as that account balance builds up and you have enough to pay off a creditor, they will negotiate settlements of pennies on the dollar.
They usually do nothing for two or three months and by that time yoúll be hounded daily by collectors.
Often they never do anything to help pay off your debt.
Consumers who get caught up in these schemes usually end up in worse shape than before they started with the debt negotiation agency and have nothing left to do but file for bankruptcy. Ím sure yoúve heard the phrase, if it sounds too good to be true, it probably is. Well for most negotiation agencies the deal is too good to be true.

The best way to find help with your debt problems is to work with a non profit credit counseling service or speak with an attorney who can give you all of your options, including bankruptcy.

For more information and detail please visit my other website, specifically at http://www.sandiegobankruptcylegalgroup.com/debt-negotiation.html