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 2,000 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. The reason for this is simple: only an attorney can give you the FULL RANGE of options actually available to you. Neither a debt settlement company nor a credit counseling agency (even a great one like CCCS of Buffalo) can legally advise you on bankruptcy or other legal options. They can merely suggest you talk to a bankruptcy or other attorney. Conversely, a bankruptcy lawyer can advise you on bankruptcy, debt settlement, counseling agencies, asset transfer strategies (or even doing absolutely nothing about your debts if you are already “judgment proof”).
Here’s A Typical Example Of A Client 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 services
2. Debt company tells customer to start sending in monthly payments of $357 per month for the next 36 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 fees when they settle the initial SMALLER (easier) debts. They make it seem as though this is how it’s going to go with ALL your creditors. But the truth is that creditors are not going to wait around and do nothing until the debt settlement company gets around to paying their claim over the typical 24-36 month plan. This is especially true now that New York has only a 3 year Statute of Limitations on Debt Collection. While your creditors may not be calling you any more, this does NOT mean they are “working with the debt settlement company.” Eventually, your credit card and loan companies may hire lawyers to sue you for the money, obtain judgments, and then try to garnish your wages or seize personal property. On average, my office receives 5-10 calls PER WEEK from clients who are getting sued for debts they enrolled in the debt settlement program.
4. When the debt settlement client is sued by a creditor, the client naturally calls the debt settlement company for help. It’s only then that the debt settlement company tells them there is nothing they can do because client has not built up a large enough “settlement fund” or the creditor is not “willing to work with them.” That’s often when the client drops out of the program or contacts a lawyer for help. When customers ask for a refund, the company often says “no” because all of the money that customer has paid into the program is being applied to debt company’s fees. Even though it is illegal for the debt settlement company to hold on to the remaining funds (which are supposed to be held in “escrow” for the client), few of our clients ever actually receive any refund.
5. The debt settlement company does not really care if you drop out. Why? Because they have typically already made money on the client and just move on to the next person who enrolls. While it is true that debt settlement companies settle a lot of debts, the only statistic that really matters is the percentage that actually COMPLETE the program, which is less than 10%. Although there are more protections in place for consumers than there used to be, there is no definitive proof that those protections have made a meaningful difference.
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 former US President Obama in the background. This appears to be nothing more than a blatant effort by the debt settlement program to create the impression that the President somehow supported 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.