Clark and Washington regularly advises our clients and prospective clients to be extremely wary about any company that purports to have a "secret process" to reduce debt or cut interest rates.  Credit card companies, banks and other lenders are in business to make money and there are no secret back door channels to reduce debts.

Any reduction that you might see will be a reflection of whatever risk that the lender sees.  For example, consider the following:

Borrower 1: Bob lives in a single family home with a mortgage and a home equity line of credit.  He is current with his mortgage.  Bob and his wife earn $75,000 annually and he owes $5,000 to Creditor A, $5,000 to Creditor B and $7,500 to Creditor C.  He is current with all of his credit card debt but because of some other expenses, the minimum credit card payments leave him with little left over at the end of the month.

Borrower 2: Sally is a single mom with 3 kids who lives in an apartment.  She has lived in 3 different places over the past year and has broken 2 previous leases.  Sally used to work for a trucking company and earned $65,000 annually, but she lost her job 6 months ago and has been working temp jobs ever since.  Sally owes $5,000 to Creditor A, $5,000 to Creditor B and $7,500 to Creditor C.   Sally paid the minimum payments on credit cards for a few months, but she failed to pay anything in June and July and only paid August and September because of near constant harassment from bill collectors working for the credit card companies.

Bob and Sally have both retained the services of credit counseling services.  If you were a credit manager for Creditor C, how would you respond to a request for a reduction in balance and interest rate from the credit counselor?

Clearly, Sally represents a much higher risk.  She owns no real estate that can be encumbered by a lien and because of her erratic employment situation, it will be difficult to garnish her wages.  Sally also represents a risk that other creditors may sue her first, and therefore end up with superior rights to pursue assets.  Sally also appears to qualify for Chapter 7, which could wipe out all debt owed to Creditor C.

Bob, by contrast, represents a much lower risk.  He has a home, which could be encumbered by a judgment lien.  He has a stable job, which means that his wages could be garnished and because he is current with all payments he appears to have the capability of continuing to pay.

Creditor C's credit manager is likely to offer very little to Bob's representative.  There is very little risk that Bob will default, and it is possible that a call from a credit counselor will trigger Creditor C to increase the interest rate, reduce Bob's credit limit and shorten the grace period for payments.

Unsecured creditors have very little leverage and they generally take the position that the "squeaky wheel gets the grease."  Creditor C will do everything in its power to encourage Bob to direct his resources into paying Creditor C by increasing the pain factor (interest rates, shorter grace period).  The problem, of course, is that once Creditor C puts Bob in a higher risk category, his other creditors will spot this action on his credit reports and they will do the same, possibly leaving Bob with an unmanageable situation.

Now, what about Sally?  Creditor C's credit manager is likely to see Sally as a significant risk for total default or bankruptcy.  The credit manager is likely to offer Sally's credit counselor a deal to avoid that default, or worse, bankruptcy.  Sally's best deal would come if she can come up with a lump sum of $2,500 to $3,000.  Creditor C would be happy to "take the money and run."  Otherwise, the credit manager wants to do everything in his power to encourage Sally to devote her limited resources to paying Creditor C as soon as possible.  Terms might include a reduction in the total balance, lower minimum payments and a reduction in interest for a few months.

It is also possible that the credit manager will refuse to do anything.  If statistics complied internally by Creditor C document which type of negotiation is likely to result in higher rates of payments.  Perhaps a reduction in interest rates results in a higher payment rate for a person in Sally's position, or perhaps a 2 month moratorium on interest.

If Sally's account has been sold to a private debt buyer, that debt buyer may have its own business model for negotiating with delinquent account holders.

The point of walking you through this analysis about Bob and Sally is to demonstrate that any deal that Sally or Bob might get is the result of where these individuals fall within the business models used by Creditor C or a debt buyer who bought the account.  At best a private credit counselor may have some knowledge about the circumstances in which a creditor will negotiate but the terms of any "deal" will be set by the creditor.

In addition these "deals" are likely to be moving targets as creditors and debt buyers are constantly coming in and out of the market, and they are constantly adjusting their business models.

When you consider the number of complaints that the Florida Attorney General has received about private credit counselors, it would appear that many Floridians are not too happy with the results they are seeing.  If you are in a debt crisis, or if you see a crisis on the horizon, Clark and Washington encourages you to call our office for a no-obligation consultation.  We also recognize that bankruptcy is only one answer to debt issues, but it is not the only answer.  As attorneys we have a professional and ethical responsibility to offer advice that addresses your needs and not our profit.  Take advantage of this free consultation and debt evaluation by calling our office at 813-345-5954.

Michael Cone, the former president of a road contracting company, has been sentenced to a fifteen year prison term for bankruptcy fraud.  His wife, Joanne, claims that she had minimal knowledge of her husband's business and that her signature on bankruptcy paperwork did not reflect an intent to defraud the bankruptcy court.

Whether or not you believe Mrs. Cone, let her experience serve as an important lesson.  If you sign your name to a bankruptcy petition you are asserting under oath and under penalty of fraud that the information contained therein is true.  As Mrs. Cone has discovered, it is much more difficult to later claim that you had no knowledge of your spouse's business.

What should you do if both you and your spouse need to file bankruptcy, but you have some misgivings about the truthfulness of your spouse's disclosures?

First, you should seek your own counsel.  Attorneys are not permitted to represent clients with conflicting interests, even if those clients are married.  Most consumer bankruptcy lawyers will speak with you at no charge.  At Clark and Washington, we are happy to schedule an office appointment at no charge.  If you are concerned that your spouse is lying on his/her petition, you may file your own petition that reflects your financial situation as you know it to be.

Read the Tribune story carefully.  Apparently, Mr. Cone had the opportunity to accept full responsibility and spare his wife a prison sentence.  He apparently believed in his innocence and lost at trial.  Now his wife is facing five years.

Situations and relationships change.   If you are sitting in a bankruptcy lawyers office, you need to do what is best for you.