Be careful of debt negotiators. When someone tells you they can fix your debt problems, then a very relevant question would by “How?” The fact is, debt is an agreement stating the debtor will pay back the creditor. If the agreement is broken then the creditor can use collection efforts and court judgments on their side. Bankruptcy is offered by the government to help, not hurt. Companies offering bankruptcy alternatives will use a hard sell to convince you to avoid bankruptcy. For people really in need of filing, this advice is a disservice.
Debt negotiation companies try to settle accounts by advising a debtor to fall behind on payments. Instead of sending money to creditors, payments go to the negotiator. They will hold that money in an account while attempting a settlement. The plan is to take that money to pay creditors once they agree on lower terms. But if no agreement is reached the debt will continue to be collected on and potentially become a lawsuit. Also, if the creditor denies the settlement the negotiator keeps all the money.
When offered settlements, creditors consider the fact that they have to pay taxes on outstanding loans. Paying these taxes forces them to need a minimum amount of money each month to break even. They may anticipate losing money by accepting decreased payments for a long period of time, and may prefer the debt to be “charged off,” freeing them from their tax obligations.
Consolidation companies try lowering creditor payments, sometimes it works, and sometimes times it doesn’t. This option can not offer any guarantees either. They can attempt to lower payments. But keep in mind, debt is supposed to be temporary, and lowering payments does not equal getting out of debt.
It's true that bankruptcy isn't for everyone. But it is certainly necessary for many people. Services providing consolidation plans or negotiation can typically only help a particular group of people, who consider their debt do be a mere inconvenience. For everyone else, these services just mask a big problem. When debts become a real problem, crossing your fingers with negotiation could create more harm then good. It’s very common to hear these companies offer to keep you out of bankruptcy, by providing their services as an alternative. There is no such thing as an alternative to bankruptcy. It is a last option to a problem that can not otherwise be corrected. Either it's needed or it isn't.
Don’t take advice from anyone who claims to know how your creditors think. Only creditors decide when to settle on lower terms. In times when they do offer settlement, they typically accept a lower payoff amount, but only offer it for a short time, usually too soon for the debtor to pay it anyway.