When to ditch debt management

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

Dear Bankruptcy Adviser,
I am in a debt management program and I just received a summons to go to court. I have an attorney with this program, and she says to go to court and tell them that I cannot afford it. What should I do? Should I stop the debt program and get a local attorney?
— Ann

Dear Ann,
A summons means that someone is suing you to collect on a debt, and you are being asked to appear in court or respond to the summons in some manner. Typically, you are required to file a response (called an answer) to the summons or else the person suing you will get a judgment against you without a court hearing (called a default judgment). Hopefully, the attorney for the debt management program understands the laws in your state and knows exactly what you need to do regarding the summons.

For example, in California you cannot simply show up at court and expect to have a hearing unless you first file an answer to the summons.

This is a difficult question because the answer could be costly. Most people owe the money they are being sued for. You could be wasting money to hire an attorney simply to say, “Yes, I owe the money.” However, this approach could buy you more time and allow you to build up enough money to settle the claim.

You are facing one of the largest problems with debt management programs. When a lender refuses to work with the debt management company, the borrower is put into an impossible position — try to pay the debt management company or try to settle this lawsuit before wage garnishments or bank levies occur. Unfortunately, the failure of these programs to actually handle the lawsuit means that many people cannot afford to continue paying the debt management company on top of paying a judgment.

The result usually means more business for bankruptcy attorneys because the lender with the judgment might garnish wages or levy a bank account, which will not allow you to continue paying the debt management company. As a result, you wasted money trying to settle your debt because you cannot continue to pay.

I always tell clients that debt management programs work in very specific situations: (1) you are able to deal with all your creditors inside the program, thus allowing you time to build up the money to pay the accounts, or (2) you can actually afford the payment and are not just hoping to avoid bankruptcy.

Many debt management companies will actually refuse to work with a client when the numbers make no sense. Unfortunately, there are still quite a few out there that will take money from anyone willing to pay, only to have the client fail to continue making payments because the payment does not fit into his or her budget. And the client ends up exactly where he started, minus the money paid to the debt management program.