newjerseynewsroom.com

BY AVI FRISCH

NEWJERSEYNEWSROOM.COM

With the economy in its current condition, your radio and television are likely permeated by advertisements for companies promising relief of your debts. Some commercials promise that their sponsors are working on government programs to help out distressed homeowners struggling with their mortgage. Others claim that they are able to reduce your credit card debt. Either way, they will all take a large upfront fee, but it is important to be leery of promises that sound too good to be true.

The State of New Jersey has a strict law regulating what the law calls "debt adjusters." It is illegal for any for profit company to take money from you to pay out to your creditors. Only non-profits may become licensed debt adjusters, and even with a license they may only take a $15 a month fee. You can search to see if a non-profit is licensed at the website of the Department of Banking and Insurance. If you have given money to a for profit debt adjuster, contact the New Jersey Attorney General or the Department of Banking and Insurance.

Other companies claim that they can help you seek a modification of your debts. They might help you fill out forms and gather documentation, but they have no special relationship with the banks. Most banks have all the information you need to ask for a modification posted on their websites. In addition, direct negotiation of your debts is probably also illegal, as it is the unauthorized practice of law. Only a licensed attorney in New Jersey may negotiate the terms of a legal agreement or settlement of legal claims.

Furthermore, it is throwing good money after bad. Banks are not generally completing loan modifications for mortgages, and end up suing people to foreclose on their homes. Part of the foreclosure process is court ordered mediation that is free and will give you an opportunity to ask the bank to settle your case.

In my practice, I see a lot of individuals who have been told that in order to get a modification they need to stop paying their mortgage. This is largely true, as the banks figure there is no need to negotiate with you until then. Be forewarned, defaulting on your mortgage will severely damage your credit and lead to your getting sued in foreclosure. This slow process takes many months, but is not especially pleasant, so only default if you cannot afford your payments.

Other non-house related debts can be settled, but you are better off hiring an attorney to represent you in court, as you will definitely be sued for the money owed once you stop paying. Debt adjusters will not help you in court; many do not even inform clients about the fact that a judgment means that their wages can be garnished, their bank accounts seized or their property sold.

Finally, many people would be best off talking to an attorney about filing for bankruptcy. Many would owe little or nothing on their credit card debts, without paying outrageously high fees to a debt settlement company. Sure it will hurt your credit, but most people considering bankruptcy have poor credit ratings, and anyway should not be borrowing anytime soon. Later on, lenders might even prefer someone who has had their debts discharged to someone struggling on payment plans to cover all of their old debts.

As the preceding should make clear, there is no panacea when you fall behind on your debts. Defaulting might result in a settlement and reduced payments, but at a high cost to you. These include legal fees, damage to your credit rating and a great amount of aggravation. The key thing to remember, is that if it sounds too good to be true, then it is too good to be true.

Avi Frisch is a lawyer in Paramus and Manhattan. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it This e-mail address is being protected from spambots. You need JavaScript enabled to view it