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IRS
Credit-Counseling Investigation Advances, Strips Tax-Exempt
Status From
50% of Industry Debt Resolution Option Remains as ‘Perfect
Storm’ Sets Bankruptcy
Hurdles
San
Mateo, Calif., Jan. 30, 2006 –
Following the IRS’ announcement that it is revoking
the tax-exempt status of credit-counseling firms responsible
for 50 percent of the industry’s revenue, consumers
with unmanageable debt face an increasingly arduous
course, says Brad Stroh, co-CEO of Freedom Financial
Network, LLC.
During
2005, the Federal Trade Commission and Internal Revenue
Service initiated a crackdown on credit-counseling firms
that engage in unlawful trade practices or abuse nonprofit
status. The IRS already has revoked the nonprofit status
of five firms, and the agency last week notified 30
more firms that they will lose their tax-exempt status
as a result of the latest investigations. The timing,
says Stroh, couldn’t be tougher for consumers.
“The
bankruptcy reform legislation that went into effect
last October mandates that consumers who file for bankruptcy
protection obtain debt counseling from an approved non-profit
agency within six months prior to filing,” Stroh
explains. “Many states require that credit counseling
agencies be nonprofit organizations, but the IRS is
auditing many of these firms and revoking their not-for-profit
tax status. While this is the right thing to do, consumers
will have difficulty in meeting the requirements of
the bankruptcy laws – and therefore lose the ability
to declare bankruptcy or get help with their debt from
these traditional sources.”
The
continual tightening of the bankruptcy and credit counseling
industries comes at a time when consumers are feeling
the squeeze from other economic pressures as well, says
Stroh.
-
The
Federal Reserve has raised interest rates more than
a dozen times; credit card companies have responded
with punitive annual percentage interest rates of
more than 30 percent for customers who have missed
or been late with payments.
-
New
policies on credit card minimum payments have raised
minimum payment requirements from 2 percent to as
much as 4 percent of balances, resulting in doubled
minimum payments for some customers.
-
This
winter has seen the highest natural gas and fuel
oil prices in recent memory, forcing some consumers
to choose between utilities and debt payments.
-
Home
prices are slowing for the first time in several
years in many parts of the country.
“Times
are tight for consumers in serious debt trouble, but
consumers need to know there are options beyond bankruptcy,”
Stroh explains. “Many consumers might not be aware
that they can avoid the hassle and expense of a bankruptcy
filing by working with a reputable debt resolution company
instead.”
By
negotiating with creditors on behalf of the consumer,
a debt resolution company can reduce a consumer’s
principle balance due – rather than just interest
rates – as well as lower monthly payments and
avoid the negative credit impact of a long-term bankruptcy
judgment. For those consumers who do contemplate a Chapter
13 bankruptcy filing – which establishes a repayment
plan rather than wiping out all debt – the debt
repayment plans that a debt resolution company obtains,
Stroh says, almost always will be more favorable to
the consumer than those resulting from Chapter 13 filings.
For example, Freedom Financial Network clients often
can save up to half the total amount they owe.
Freedom
Financial Network, LLC (www.freedomfinancialnetwork.com)
provides consumer debt resolution services through its
Freedom Debt Relief and Freedom Tax Relief divisions.
The company works for the consumer, negotiating with
creditors to lower principal balances due that can often
result in savings of up to half the amount owed. Based
in San Mateo, Calif., Freedom Financial Network serves
more than 5,000 clients nationwide and manages more
than $200 million in consumer debt, offering an alternative
to bankruptcy, credit counseling, and debt consolidation.
###
CONTACTS:
Brad Stroh,
Freedom Financial Network, LLC
650-571-0961, x210
bradford@freedomdebtrelief.com
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