We have talked to countless victims of debt settlement and debt reduction scams over the years. Not only do these programs (ahem, scams) end up being costly, they usually land the clients in worse financial situations than they were before they reached out for help. In our opinion, only a licensed attorney should be providing advice to people with financial problems.
How Debt Settlement Firms “Help” Consumer
The consumer typically calls the debt settlement firm hoping that they can help the consumer settle $30,000 worth of debt for much less. The debt settlement firm assures the consumer that they can settle the debt for 50% of the $30,000, which is only $15,000. The debt settlement firm has to make money, though. Their fee is a percentage of the consumer’s savings, so there goes another percentage of the debt on top of what the consumer pays toward the debt.
Note: It is illegal in the following states for a for-profit debt settlement or debt reduction firm to work with you, even if they are based in another state: Arizona, Georgia, Hawaii, Louisiana, Maine, Mississippi, New Jersey, New Mexico, New York, North Dakota, West Virginia, and Wyoming.
The debt settlement firm instructs the consumer to make monthly payments of a certain amount for the next five years or so to pay off their debts and the fee. They also tell the consumer that they will allow the payments to accumulate until there is enough to begin paying off creditors. So far, this sounds legitimate, right?
If you work with one of these establishments, you will find that they let the money you pay them accumulate until their fee is paid off before they start paying any of your creditors. Your credit is not improving at all while you are making these payments if they are not paying your creditors. In the same breath, your creditors are still calling you and threatening you and possibly even suing you, because none of them are going to be happy with waiting two or three years for payment. During this time, judgments can still be filed against you, your wages can be garnished and your property can be seized.
While this is going on, you contact the debt settlement firm you are working with and ask why your creditors are still coming after you. They will typically turn around and tell you that your settlement fund has not built up enough to pay your creditors off. If you ask them for a refund, they will refuse to give you any of your money back.
Then, you do what you should have done in the first place. You call a lawyer to inquire about your options, which are usually either Chapter 7 or Chapter 13 bankruptcy.
Why Do Debt Settlement Firms Get Away With Scamming People?
State and federal governments are constantly investigating debt settlement establishments for fraud. Every time they shut one down, however, two or three open up in their place. How can they get away with what they are doing?
There are always consumers with debt problems and these people often want to find a quick solution to their problems. These scammers prey on stressed and vulnerable consumers.
Debt settlement programs are advertised excessively on the radio, television, and internet, making them seem trustworthy.
Some of these firms profess to be non-profit.” When people see this word, they relate it to charitable organizations. Unfortunately, the truth of the matter is that companies can be non-profit, but still have payrolls for employees (and owners) that include exorbitant salaries.
If you consult with an attorney and he or she determines that your debt load is relatively low, bankruptcy might be too drastic for your situation. A reputable attorney will point you in the direction of a credit counseling program that is legitimate. While these programs will not help you eliminate your debt, they might be able to assist you with structuring your payments to creditors or negotiating the interest you are paying.
Are You Considering Filing For Bankruptcy?
If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.