Bankruptcy

New Debt Relief Rule Means More Truth in Advertising

By guest-writer

If you?re struggling with debt and looking for a way to improve your finances, there?s good news on the horizon: beginning Monday, September 27, new rules issued by the Federal Trade Commission prevent advertisers from deceiving potential customers about their ability to offer financial relief.

Here are some of the new protections the FTC?s latest consumer protection rule outlines.

More Honest Disclosures

While bankruptcy is a well-known debt relief option, many consumers try to avoid filing for bankruptcy by opting for debt settlement or credit counseling. While both options work well in many instances, in some cases, dishonest companies pitch too-good-to-be-true offers and consumers end up with more debt than they had before.

Now, advertisers will have to:

• Announce proposed fees & refund policies No longer will companies be able to get away with advertising how low a price might be (?as little as??). Now, advertisers will have to base their proposed fees on actual results they can realistically expect to get from a person?s creditors.
• Estimate likely time frame: After consulting with a customer, debt-settlement companies must offer a good-faith estimate about the likely length of time the process will take, based on a debtor?s individual circumstances.
• Estimate savings required to settle debts: As with the other new requirements, companies must make estimate how much money an individual customer must save before he has a realistic chance of settling debts based on that customer?s individual circumstances.
• Disclose potential negative side effects: Rather than glossing over the downsides of debt settlement, companies are now required to review with customers the potential negative impact on their credit reports, the chance that creditors will bring lawsuits against them and any potential tax consequences.

More Honest Advertising

In addition to the above requirements, debt settlement firms are now required to advertise likely savings based on all their clients, not only the most successful ones. Theoretically, this should give potential customers a more realistic picture of how much debt settlement could actually help their finances.

Debt Settlement Vs. Bankruptcy

While there is no one-size-fits-all debt relief option, bankruptcy protection does have some obvious advantages over debt settlement and some other bankruptcy alternatives, which include:

• Legal protection from creditors: Because bankruptcy functions as part of the federal government, those who file for bankruptcy are legally protected from creditor contact once they file their cases.
• Federally and state regulated processes: While anyone can start a debt settlement firm, regardless of qualifications, bankruptcy attorneys and judges must meet very specific requirements, so you won?t have to question the background of the people you?re working with.
• Federally regulated costs: The fees associated with filing for bankruptcy are set by federal laws, so you know you aren?t getting ripped off when you start a case (although fees that lawyers charge may vary). Debt settlement firms, on the other hand, can charge whatever they want ? and some unscrupulous firms do, to the detriment of their clients.

Full post as published by The Bankruptcy Blog on September 28, 2010 (boomark / email).