Debt settlement companies (debt relief companies) have been getting a lot of scrutiny lately, and with good reason. Although they are making lots of money during this difficult economy, it is usually from the people who can least afford it – consumers who are already behind on their payments.
Often, these debt settlement companies will advertise that they can settle your debt at a significant discount from what you owe. However, in most cases, this is simply a scam. What many such companies do is convince the consumer to stop paying on their debts to credit card companies, home finance companies, store charge accounts, and sometimes even on their car payments and mortgages. Instead, the consumer is instructed to send in just one payment – to them, of course.
At first, consumers feel relieved – they are now paying only one company instead of 3 or 4 or even more creditors. Sometimes the creditors will send a letter asking why you’ve stopped paying. When the consumer calls the debt relief company to find out, they are often told not to worry about it, since they are “in the middle of negotiations”. Many times, this is simply false.
Instead, the debt settlement companies take a major share of the payments you have made to them, even though you thought the payments were going to pay down your debts. In the meantime, your creditors usually escalate their contacts with you. After a few months, it is not unusual to be sued by one of those creditors that you thought was being paid by the debt settlement company on your behalf. Then, when you call the debt settlement company about the lawsuit, they tell you that they are not lawyers, and can no longer assist you. You’re left on your own, at the receiving end of a lawsuit, and without your hard-earned cash to either pay your debt or retain an attorney to help you out.
By the time you realize what has happened and try to get your money back, most of it has been taken by the debt settlement company as their up-front fee for their “services”. Even if you get some money back, you almost always lose a significant portion of it, and you end up with even more debt! This is because the interest kept increasing while your debt settlement company was not paying your creditors.
Most consumers don’t know that their creditors have no obligation to deal with such debt settlement companies – and many simply refuse to deal with them. Instead, many creditors will just file a lawsuit against you in an attempt to make you pay. Virtually always, the debt settlement company can do nothing to force your creditors from suing you.
This does not mean that every debt settlement company is a scammer. I myself have not personally experienced a legitimate debt settlement company, but there may be some non-profits or governmental agencies that may legitimately assist you. On the other hand, I have represented many consumers who were taken advantage of by such debt settlement companies, leaving them in a much worse financial, legal and emotional condition than they were before. If you are contacted by a debt settlement company, and are considering signing up, be sure to get a detailed explanation of how much they charge, when they charge it, and the exact dollar amounts that will be going to each specific creditor. If they refuse to tell you the numbers in dollars and cents (beware those that deal only in percentages), or if they don’t promise to pay any set amount to specific creditors (and instead only talk about paying down debt generally without specifying the amounts for each creditor), or if they insist on getting paid up-front before your creditors, the debt settlement service may be just a scam.
If you have been defrauded by such a company, you may want to speak with consumer attorney near you, who should be able to advise you of your rights, and the possibility of recovering some of your money.