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Bouncing back from bankruptcy

By Lauren Johnston | amNY.com

June 19, 2007

Lisa Golan's credit card balance was close to $16,000 by the time she saw a television ad offering debt solutions and picked up the phone to dial for help.

"It was living in New York, living paycheck-to-paycheck," said Golan, 41, who has worked as a hairdresser here for 11 years. She started supplementing her earnings with credit card cash advances to make ends meet.

But the bills piled up and when she couldn't make payments, her interest rates skyrocketed and then came the late fees. "I was in financial ruins," said Golan, who lives in the Kensington section of Brooklyn.

Out of options, she contacted a debt referral agency called Debt Choice. Golan thought she was getting consolidation services. But Debt Choice put her in touch with The Seideman Law Firm, a debt settlement group.

"Debt Choice looks at the scenario and connects you with the appropriate people -- they can connect you with people to do a loan or credit counseling or bankruptcy," said Oscar Balderrama, a customer service representative at Seideman.

That misunderstanding was the first in a chain of events that would spin her financial woes from bad to bankruptcy.

According to Golan, Seideman developed a strategy to get her debt-free in three years. Since Golan could no longer meet her monthly minimum credit card payments -- she had about 12 cards at the time -- she would instead send Seideman $174 per month. Those funds would cover the firm's retainer fee and the rest would build in a trust account until Seideman's attorneys were able to negotiate lower balances for Golan. Then the money would be transferred to her creditors in a lump sum to settle the debt.

"They gave me strict instructions to just deal with them," Golan said. She forwarded all mail from her creditors to Seideman and hung up on angry calls from collection agencies, which under the Fair Credit Reporting Act are prohibted from harassing consumers.

In an e-mail statement, Debt Choice representative Katie Brennan said, "Clients who choose to enter a Debt Settlement Program are made fully aware of how the program works, prior to making the decision to enroll in the program."

Still, like many consumers, Golan was confused and says it was tough to get employees from either Seideman or Debt Choice (both have Fratings with the Better Business Bureau) on the phone to answer questions after her initial call. She never met with anyone in person -- which credit advisors say can be a red flag. Both the Federal Trade Commission and the Better Business Bureau reccommend in-person counsultations.

Golan says she found the lack of contact stressful, but in the end dismissed her worries thinking, "Oh, well they're taking care of it," she said. Through the whole process, she thought the settlement agreement was similar to counseling or consolidation plans.

"That's the biggest misconception -- that we're a credit counselor," said Balderrama. But debt negotiators, or settlement groups, are much different.

A credit counselor may devise a debt management plan (DMP) to help clients learn to budget and make timely payments to creditors, with the aim of restoring good credit eventually. A consolidation plan trades several small debts for one loan that may have a lower interest rate than the separate credit cards.

By contrast, debt negotiation is "very risky," said Frank Dorman, a spokesman for the Federal Trade Commission.

"Settlement is legal, but it's probably the worst thing you can do," said Sandy Shore, a senior credit counselor at the New Jersey-based non-profit NovaDebt. "Your credit is shot and you may or may not get a deal with the creditor."

It's a risk Seideman notes on its Web site, which states, "Look, we'd love to be able to tell you your credit will be unaffected or improved, but we simply cannot." The firm also acknowledges the risk of being sued by creditors.

And that's what happened to Golan.

After sending payments for several months they say five, while she says nearly a year -- Golan came home to a subpoena tacked on her front door.

"My credit cards were coming after me I was $15,000 more in debt, and I ended up in bankruptcy court," she said. Golan says her debt nearly doubled due to late fees and penalty charges, though attorney Scott Seidman said, "She was a client of ours for such a short period of time, it would have been impossible."

In the end, the firm refunded her money, Golan said. On February 12, she filed for bankruptcy. Court papers show her debt was $27,981 at that time. Her case was discharged May 15 and Golan is trying to make a fresh start, but says the whole thing was "a horrifying experience."