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Jun
19
Be wary of debt settlement companies
Filed Under law
The New York Times warns consumers to be wary of companies claiming they can help settle credit card and other debts.
State attorneys general from New York to California and consumer watchdogs like the Better Business Bureau say the industry’s proceeds come at the direct expense of financially troubled Americans who are being fleeced of their last dollars with dubious promises.
Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors.
When I worked for debt collection law firms, it was not uncommon to hear from debtors advising that they were paying money to a debt settlement company. However, the debt settlement companies often were not paying any money to creditors or were making small settlement offers that they should have known wouldn’t be acceptable to the creditors.
Often, these debtors were paying monthly fees to the debt settlement places in the hopes that they’d eventually “save” enough money to offer a settlement. Most debtors were paying a significant monthly fee to the debt settlement agencies for collecting their monthly payments.
Unfortunately, debtors who were already in post-judgment collections and who were working sometimes ended up with garnishment orders because their judgments were not being paid. Debtors who were in pre-suit collections often ended up being taken to court because nothing was being paid on their bills.
While making payments might not keep a creditor from going to court, it hurts debtors when they are paying monthly fees to a debt settlement place that might not be doing much (or might not be able) to protect the debtor. The high fees charged by the debt settlement companies often end up being more than it would have cost for the debtor to hire an attorney to file bankruptcy, work out a resolution with creditors, or defend against a collection lawsuit.
Comments
4 Responses to “Be wary of debt settlement companies”
Hi Chris,
I have some experience with this from years back when I did some counseling for folks.
I found that it was easier for most people to make their own negotiations with creditors.
I don’t think it is quite as easy these days is it?
AL
Hi Allyn,
I haven’t done any negotiation with credit card companies lately, but I assume that they aren’t willing to negotiate until the debtor has some leverage, i.e. the credit card company assumes that the debtor will never pay and has charged off the debt. At that time, the credit card company might settle for a lesser amount.
However, debtors should call their credit card companies on their own to see if there are any ways that the issues can be resolved, i.e. the card can’t be used anymore, but the debtor sets up monthly payments with a reduced interest rate that might make it possible to get the card paid off in a reasonable amount of time, rather than 22 years or whatever it works out to be paying the minimum at the credit card companies’ highest default interest rate.
If someone is in that position — having charge offs, late payments, etc. — they might want to check into filing for bankruptcy protection.
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Pay Debt
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shane ping
Pay Debt