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Bankruptcy not the only option for debtors

Debtors facing harassing creditors and credit collection agencies have options beyond declaring bankruptcy in Kentucky. Some people may find relief through working with a debt settlement company or a credit counselor.

The main difference between working out a settlement with creditors and working with a counselor is the amount that a debtor will pay. Counselors can only advise clients on what they should do and help them develop a budget that gives them money to pay their debts and pay for their average expenses.

A debt settlement company may have the ability to reduce the total amount of debt that a Kentucky debtor has. These companies usually take over the monthly payments of their clients and request that clients pay them instead. Credit counselors can work with clients and help them lower their normal payments, but debt settlement companies can bring down the total amount of debt.

Federal law prohibits creditors and collection agencies from harassing or threatening those who owe money. Those companies can file lawsuits in local courts to get back the money owed. If the court finds for the creditor, the creditor can request wage garnishment, which takes a portion of the individual's paycheck until that person pays back the amount owed. Creditors can also attach a lien against an individual's back account or any property that person owns.

Those who owe more than they think they can pay back in a reasonable amount of time may opt to file for bankruptcy. One type of bankruptcy will eliminate most or all of the debt that an individual carries while other types will let individuals pay back less than they owe. The court will usually look at how much the individual makes in terms of how much debt he or she has.

Source: Consumer Financial Protection Bureau, "What's the difference between a credit counselor and a debt settlement company?", January 03, 2015

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