Bankruptcy Attorneys Warn Consumers on Debt Settlement

[frogger]

Monday, October 22, 2012

A group of bankruptcy attorneys is warning cash-strapped borrowers against the hazards of working with companies that promise to reduce debt in exchange for a fee.

Consumers should proceed with caution before accepting an offer from a company that promises to negotiate on their behalf with credit card companies and other lenders, according to the National Association of Consumer Bankruptcy Attorneys.

"Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses," the association wrote in an alert published Wednesday.

According to the association, debt-settlement companies often advise clients to stop paying their bills, a move that can result in higher fees, fines and penalties that leave borrowers deeper in debt.

"Debt settlement schemes are a trap for most consumers because inherent in the industry's standard business model is the requirements that clients breach their contractual oblations with creditors," the group added.

The group is advising consumers to avoid companies that promise to pay off unsecured debts at significant discounts, or that charge monthly fees or demand payment of a portion of the amount they promise to save.

The American Fair Credit Council, a trade group that represents debt settlement companies, did not respond immediately to a request for comment. The council has pointed out previously that companies who offer to resolve consumer debts must operate in accordance with rules set by the Federal Trade Commission.

"No debt resolution provide subject to the FTC's rules may (1) promote and market debt resolution programs in a manner inconsistent with the FTC's advertising rules, (2) charge or accept compensation of any sort until a consumer not only has been presented with a settlement but has accepted that settlement and has made at least one payment toward completion of the settlement, and (3) receive, actually or constructively, consumer funds," Robby Birnbaum, the council's president, wrote in a letter last month to Attorney General Eric Holder.

The bankruptcy attorneys' warning follows a string of efforts by regulators to police firms that offer to modify mortgages and other loans. The Federal Trade Commission filed three separate lawsuits last month in Florida, California and Ohio against three alleged scams that offer to relieve borrowers of mortgage burdens.

The Consumer Financial Protection Bureau in August sued a Los Angeles law firm over an alleged debt relief scam. California regulators warned consumers in January to be wary of promises for loan modification.

By Brian Browdie

http://www.collectionscreditrisk.com/news/bankruptcy-attorneys-warn-consumers-on-debt-settlement-3012193-1.html?ET=ccrisk:e13995:81359a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=CCR_Newsline_102212_102212

[tobee43]

this is a GREAT article and warning for many.

i was just reading and posted on another thread an actual example of some of these places and how they work. the example i used is this company asked people to make money payments directly to them, when they are accumulated enough, they go to your creditors and let's use the example of a 10k credit card bill, they negotiate it to 5k, but the debtor has to pay 7k since the company who's supposedly helping you is taking a nice chuck. also, while you and they are awaiting your payments your credit reports are being reported delinquent, since the company does make one single payment towards your account nor even begin negotiations with those cc and other creditors that may work with them until they have ALL the money they require you to have.

great one FROG

[bcohen]

There is only one "debt settlement program" that works, and it is called bankruptcy. It doesn't require the creditors' consent or participation, it works on all consumer debts--regardless of where they are in the collection process, and it doesn't result in taxes on the unpaid balances. It also costs a lot less to file, than what most of these so-called "debt settlement" companies are charging!

[tobee43]

There is only one "debt settlement program" that works, and it is called bankruptcy. It doesn't require the creditors' consent or participation, it works on all consumer debts--regardless of where they are in the collection process, and it doesn't result in taxes on the unpaid balances. It also costs a lot less to file, than what most of these so-called "debt settlement" companies are charging!

so very true. i just hate when people get sucked into these places. i read somewhere, some time ago that over 80% of those that try one of these places ends up in bk anyway, which validates your exact view on the the bottom line costs as well. they just ended up throwing good money after bad.

[brandv1]

Yep. I wish I'd known what I know now in Dec. 2009. Paid into an escrow with Persels and Associates and they only made things worse. The collection agency kept coming and turned my 19K debt into 37K with interest/fees/legal costs while Persels "negotiated" with them. And they went ahead and got a garnishment.

I got my money back (less their $50/month fees) and used it to pay the retainer fee for Ch. 13 and get new tires that I needed desperately. Just filed on 16th and garnishment took effect after that date, paperwork didn't make payroll in time. Waiting for my 341 date.

I can definitely vouch for the fact that DS companies are almost as bad as the collection agencies!

[frogger]

I can definitely vouch for the fact that DS companies are almost as bad as the collection agencies!

Actually, IMO, they are worse.

[brandv1]

Actually, IMO, they are worse.

I don't know... the collection agency for mine was pretty bad. One of the last payment offers they turned down was one they had previously counter-offered with for a payment arrangement I tried to set up. But, the settlement agency did make $1800 in fees and whatever % of the one account they did settle. Then, of course, I'll get the 1099 for the difference of the settled amount and the original debt.

But, on the bright side, that will make my refund lower so that less will go towards the creditor in my 13

[frogger]

The reason that I think they are worse is that with the collection agencies, you know what they are about. They are there to collect the money, no question about it. With the debt settlement companies, they are there to "help" you. Their "help" is based upon untruthful statements most of the time, so you don't know what you're dealing with.

Better the devil that you know.......

[Voyles]

There's really no substitute for reading the fine print when you investigate these types of debt settlements. Everyone's situation is different, and you need to be in control of your financial changes. You really have to have a roadmap if you're even thinking about stopping payments.

[brandv1]

If anybody ever asks me, I can share the nightmare and let them know that ch 7 or 13 would be a better bet. Too many people get hung up on their credit score or what line of credit they get. The DS companies will tell you that your score will take a slight ding... but being 2 years delinquent on an account while they "work for you" makes your score tank.

But, what people need to get is that the credit score does not make the man (or woman).