Should I Try Debt Settlement First Before I file Bankruptcy in New York?

New York is expensive place to live. We have higher rent, higher taxes, and higher utility bills than many other parts of the country. Many people in Queens, Brooklyn, Manhattan, Long Island and Westchester are feeling the pressure of higher gas prices, higher food prices and stagnant wages. Faced with mounting credit card debt and other bills filing a personal bankruptcy case, whether chapter 7 or chapter 13, may or may not be the right solution depending on the circumstances. In a series of posts we are exploring alternatives to bankruptcy.

A prior post on our blog I Live in New York and Am Considering Bankruptcy — Should I Try Negotiating with My Creditors First? addressed negotiating directly with creditors and/or collectors.

In today’s post we will explore so called debt settlement or debt negotiation programs. Future posts will address additional alternatives.

Debt Settlement – Debt Consolidation – Debt Negotiation

The so called Debt Settlement – Debt Consolidation – Debt Negotiation industry is driven by advertising and high pressure sales tactics. It is not regulated in many states and is generally not licensed. Many of our bankruptcy clients have had disastrous results with debt settlement companies. The problem is that they advise you to stop paying ALL of your creditors and make payments to them (the debt settlement company). They send out a proposal to all of your creditors. In the meantime there is absolutely nothing whatsoever from stopping your creditors from suing you.

Many times (unfortunately) when you get sued in New York City in the Civil Court, you may not learn about it until after the creditor has got a judgment and seized your bank account. This is because there is an ongoing and systemic problem with service of process in consumer debt collection cases in New York City. The law provides that a person sued is supposed to be physically served with legal papers, or can be served by substitute service in certain instances (such as “Nail & Mail” service – where a copy of the papers are taped to the entry door of where the debtor lives and duplicate copy mailed to him). However, the perennial problem in New York City – particularly in the Civil Courts – where most consumer collection cases are filed – is what is commonly called “sewer service”. This is where a process server doesn’t make a diligent effort to serve the debtor and basically lies on the affidavit of service.

So people sign up with debt settlement programs thinking they are doing something responsible about their debt problems and often in reality they are only making them worse. If you do decide to sign up with a debt settlement program don’t be fooled by the actors on their TV commercials, ask for some personal references of people in your area who actually used their services. The Federal Trade Commission ( has brought a number of cease and desist actions against debt settlement companies for misleading advertising and other improprieties. Prior to making any decision about debt settlement you should review the material on the FTC’s website about this – the FTC calls it “Debt Negotiation”


While some people may have a good experience with so called debt settlement or debt consolidation, in my opinion the downsides of the process are not adequately explained to prospective customers of the debt settlement companies. While you are in a debt settlement you stop paying all of your bills and cause your credit rating to significantly deteriorate, collectors can continue to call you and creditors can continue to sue you. It also can end up costing you more than bankruptcy for an uncertain result. Other non-bankruptcy solutions will be explored in future posts.

For many people personal bankruptcy may be the best solutions to their debt problems. There is a lot of misinformation regarding the 2005 amendments to the bankruptcy law. Many people are under the mistaken impression that they are not eligible for chapter 7 (liquidation), when in fact they are. A prior post on our blog New York Personal Bankruptcy — Am I Eligible to File? addressed this specific topic.

The majority of the people who contact us for personal bankruptcy in New York are still eligible for chapter 7. Even if you are not eligible for chapter 7 bankruptcy, you are most likely eligible for chapter 13 bankruptcy.

If bankruptcy is an option you would like to pursue further please contact us at Starr & Starr, PLLC at 888-867-8165 to schedule a free initial consultation.

Contact Information