You should always speak with an experienced bankruptcy lawyer before considering any other debt settlement or consolidation programs
Over the years, we have spoken with at least 1,000 clients who have lost money with debt settlement and debt reduction programs. In our opinion, these programs just make the consumer’s situation worse by delaying the real help that the consumer needs to resolve their debt problems. In many cases, debt settlement programs are nothing more than outright scams. Only a qualified attorney licensed in New York should be advising a person with financial problems.
Here’s a typical example of a customer experience with a debt settlement company:
1. Customer calls the debt settlement company with (for example) $20,000 in credit card debt and would like to settle the debt for less than customer owes. Company promises to settle the debts for 50% of what customer owes — a savings of $10,000. Company’s fee is 25% (or some other percentage) of the promised savings.
Note: It is illegal in New York for most companies (other than attorneys) to charge an up-front fee of any kind for debt settlement or debt reduction services2. Debt company tells customer to start sending in monthly payments of $250 per month for the next fifty months to cover the $10,000 in settlements and the $2,500 fee. Debt company tells customer that it will accumulate the money on customer’s behalf until there is enough to start paying creditors.
3. Here comes the problem: You start making the payments and the Company takes all or most of its fee before it pays any of your creditors a dime. In the meantime, your creditors keep calling because there is no way they are going to wait three or four years for their money. Even worse, your creditors may hire lawyers to sue you for the money, obtain judgments, and then try to garnish your wages or seize personal property.
4. Customers get fed up with the creditor harassment and call the debt settlement company to ask for help. Debt settlement company tells them there is nothing they can do because client has not built up a large enough “settlement fund.” When customers ask for a refund, company says no because all of the money that customer has paid into the program is being applied to debt company’s fees.
5. Customer eventually realizes that program does not work and calls a bankruptcy lawyer to file Chapter 7 or Chapter 13 bankruptcy or perhaps figures out some other way to handle their debts.
Why do some debt settlement companies get away with scamming consumers?
Debt settlement companies are constantly being investigated by the state and federal governments for fraud. However, for every one that is shut down, another opens in its place. So why to do these companies get away with it?
• Consumers with debt problems are looking for a way out, and they are always open to messages that may help. These companies prey on people who are stressed and vulnerable.
• These programs are heavily advertised on television, radio, and the internet, so people believe them to be credible. One television ad even showed an excerpt of a speech by the US President This appears to be nothing more than a blatant effort by the debt settlement program to create the impression that the President somehow supports the efforts of its company.
• Some of these programs claim to be “non-profit” so people think they are charitable organizations or out to do good deeds. However, a company technically can be non-profit but still pay its owners incredibly large salaries. This is how the companies can make lots of money but still shamelessly call themselves “non-profit.”
Please note that if you have a relatively small amount of debt, and our bankruptcy lawyers determine that bankruptcy is not the right solution for you, they will refer you to a legitimate credit counseling program such as the Consumer Credit Counseling Services of Rochester and Buffalo. These programs will not eliminate debt but may be able to reduce interest charges and structure payments with your creditors.
