Bankruptcy

Beware of Credit Relief / Debt Settlement Agencies

By mcbride

Customers should beware of debt settlement companies that claim to significantly reduce debt in a short amount of time.  Through the alleged ?debt settlement process,? the customer?s total debt may actually be increased, their credit scores lowered, they may be sued and may ultimately be forced into bankruptcy.

These companies typically earn big commissions for signing up as many customers as possible. Therefore, customers are generally not screened to determine if debt settlement is appropriate.  The debt settlement companies usually charge a large up front fee for signing up with their service. Once a customer has signed up with a debt settlement company and has been paid the large upfront fee, the customer will be told to stop making any payments to credit cards and to not respond to any credit card telephone calls or letters. The customer takes the money they would have used to pay credit cards and pays the debt settlement company.  These monthly payments, minus the monthly service fee the company charges, are supposedly placed into a type of ?savings account.?  However, usually the customer has no way to access the funds held in this account. When there is a large sum of money in the savings account (usually after 2- 3 years worth of payments), the debt settlement agency will make an offer to settle the credit card debt with a lump sum or the amount in the so called ?savings account.? If successful, the debt settlement agency may be able to settle the debt for 40 to 60 cents on the dollar. The customer may owe taxes on the amount of forgiven debt.

However, the debt settlement process is not always successful and this may have dire consequences to a customer. Over the course of the three years that a customer is paying into a debt settlement account, late fees and interest continue to accumulate on the credit card debt.  The debt gets larger and larger and the customer?s credit score will decrease rapidly.  Credit card companies will start calling continuously and send harassing letters; the debt may be sent to a collection agency and a customer will likely be sued on the debt during this time.  Also, during this time, many debt settlement companies will instruct the customer not to speak to any creditors and will not offer any assistance in dealing with the harassing phone calls, letters or lawsuits. At the end of this process, the debt settlement agency may not be able to settle with all credit card accounts and the customer will be stuck with a debt that has increased exponentially due to added late charges and interest. Most unfortunate is that the customer has paid a large up front fee in addition to the debt relief agency?s monthly service fee only to be given a larger debt, not smaller credit card bills.  Faced with a much larger debt and a poor credit score, many customers are then forced into bankruptcy which is probably where they should have been before all those fees were paid the agency.

Texas Based ?Credit Solutions? Under Attack: While we encourage all people to avoid for-profit debt settlement companies, one local company has recently come under fire. Credit Solutions is one Dallas based ?debt settlement? company.  They are supposed to be one of the largest debt settlement firms in the United States. The Better Business Bureau of Dallas, Texas has given Credit Solutions an ?F? rating, citing at least 1,600 complaints in the last 3 years. The Texas Attorney General has filed suit against Credit Solutions alleging deceptive business practices and false advertising in connection with their debt settlement service. For more information see the Better Business Bureau review linked below: 

http://www.bbb.org/dallas/business-reviews/debt-settlement-companies/credit-solutions-in-dallas-tx-90005445

An expose of Credit Solutions was also featured on the Today Show. See the link below to watch the video: 

http://www.msnbc.msn.com/id/38130515/38379217   

If you are in debt and thinking about signing up for a debt settlement company, please review your options carefully. There may be other ways to reduce your debt without engaging in these services or going into bankruptcy.

Leslie Asman

Full post as published by Texas Lawyer Blog on August 06, 2010 (boomark / email).