I read an article today from amNY.com about a hairdresser in New York who went to a debt referral agency called “Debt Choice.” They put her in touch with an attorney that does debt settlement negotiation. The firm was Seidelman Law Firm and the hairdresser ended up filing for bankruptcy in order to get real relief!

The Seidelman firm basically has the person pay them money every month that they deposit into a trust account and when they accumulate enough money, they try to work out a negotiated reduced debt amount in exchange for a lump sum payment. Unfortunately, the hairdresser was confused and thought the program worked like credit counseling where creditors agree not to pursue collections (at least that’s the story) and take smaller payments each month. After months of making payments to the Seidelman firm, the credit card company that had continued to accumulate interest and late charges sued her. She went from a $16,000 balance on a credit card to over $27,000 when they finally sued her.

The hairdresser ended up filing for bankruptcy. Bankruptcy, of course, offered her the only true relief. The point of the article was to expose the truth about “bankruptcy alternatives.” The fact is that credit counseling, debt settlement negotiations, etc… do not save your credit from negative reports. They aren’t “cheaper” than bankruptcy. They can’t force creditors to do things they don’t want to do. Even a representative from the Federal Trade Commission cited in the article, Frank Dorman, points out that debt settlement is “very risky.” In the end, you may or may not get a deal with your creditors and meanwhile your credit is “shot.” Even the Seidelman law firm on its website acknowledges as much.

Be careful, anything other than bankruptcy is riskier and doesn’t offer any guarantee of relief from debt.

Bankruptcy filings were up 11.5% in May over the previous month, according to the American Bankruptcy Institute relying on statistics published by the National Bankruptcy Research Center. May 2007 saw an increase in filing of approximately 51% over May 2006.

“Personal bankruptcies continue to be more volatile this year than in 2006,” said Samuel J. Gerdano, ABI Executive Director. “Overall, consumer bankruptcies are higher than last year, but still well below the levels of 2004-05.”

Foreclosure filings across the United States rose 47% in April compared to the year before. The rate is up to 1 out of every 775 households. The housing boom of the 1990’s and early 2000’s caused many people to speculate in the housing market. They would purchase and try to “flip” properties almost as if they were sitting at the craps table in Vegas. People would buy houses they never intended to occupy simply to ride the market. Unfortunately, the speculation has exacerbated the housing downturn.

The downturn coming on the heels of rampant speculation has seen more and more houses available on the market now. This has increased the market listing times and forced sellers to reduce prices. Builders have been slashing new construction prices, thereby making it more difficult to sell existing homes. These “flippers” never anticipated having to meet mortgage payments for as long a time period and more and more houses are now going into foreclosure.