The Pitfalls of Debt Settlement

We all know the old saying that if something sounds too good to be true, it likely is. That saying could not ring more true when it comes to debt settlement companies. Many of our clients come to us with multiple credit card accounts, struggling to afford the minimum payments. Out of the blue, they get an email from a credit consolidation company telling them that the company can make all their debt problems go away with debt settlement. If there is ever a perfect time for a big red warning sign to flash in front of your eyes, this moment would be it.

When it comes to debt settlement companies, consumers need to understand what they are agreeing to before signing on the dotted line.

How It Works

Most debt settlement companies, commonly referred to as Credit Counseling Programs or Credit Consolidated Debt Programs, all work in the same way. You sign up, entering into a contract with the ‘for profit’ company that agrees to work on your behalf and negotiate directly with your creditors. In turn, the company advises you to stop making payments to your creditors and make payment directly to them- in hopes that enough money will be saved up to pay off the settlement amount that is negotiated.

Trust me, I know the truth.

I have a confession. I started working for a debt settlement company in 2007 when I first became an attorney. I served as outside counsel for their clients when their debt settlement clients were sued. The Florida-based debt settlement company was under pressure by the Florida Attorney General to hire me and other attorneys because their clients were being sued as a result of entering their program. That is why most of these companies originate from or have their headquarters in California where laws are less lenient on them. Most all of them use Global Credit Solutions and Rocky Mountain Bank and Trust to collect your money. Think about what these companies do. It is almost like a layaway at K-Mart. You pay the debt settlement company money every month and they take a cut of your hard-earned payment for their fees and then when months or years pass, they MAY have enough to settle a debt. Then you are surprised when you get a tax bill for the remaining amount you did not pay back. Here is their business model: THEY EXPECT YOU TO CANCEL WITHIN THE FIRST YEAR. Because after all, most of these operations collect THEIR money first.

High Fees

Debt settlement companies are ‘for profit’ businesses, after all, so it makes sense that they would charge customers some type of fee for their services. The fee is taken out of the monthly payment deposited into your ‘savings account’ with the company. The fees that some of the biggest offenders’ charge are significant. In fact, you can end up paying more in fees on a monthly basis than you end up making progress on paying down debts. Many of these companies also will end up charging you fees without ever settling the debt, leaving you in a worse place than before.

Not All Creditors Work with Debt Settlement Companies.

You may be setting yourself up for failure as many creditors and banks have standing policies to not work with debt-settlement companies. A debt settlement company cannot promise to settle your debt. However, this fact does not keep them from trying to mislead consumers.

The Damage to Your Credit Score, Lawsuits and Wage Garnishment.

Think about it. You suddenly stop making payments on your debt, instead you are making payments to the debt settlement company. The next logical step would be for the creditor to pursue a legal action to collect on the debt. If you continue to ignore them, they could end up with a default judgment and a wage garnishment against you to get payment. Having a collections action on your credit report will also cause your credit score to take a significant hit. This is another fact the debt settlement companies do not want you to know. They will make all the promises in the world to get you to sign up. It is in the delivery where they fall short.

Recent Legal Actions

Need more proof? The Consumer Financial Protection Bureau (CFPB) reached a deal with Freedom Debt Relief, a debt settlement company accused of deceiving thousands of consumers out of millions of dollars in debt relief schemes. By entering the settlement, the company is technically not admitting guilt but is forced to pay over $20 million in restitution money to affected customers.

If you have questions on this topic or are struggling with debt, call our law firm to schedule a free consultation. Having debt makes you stay up at night. It stresses you out. It ruins relationships. I went through it. Boldly, I mustered up the courage to call a bankruptcy attorney and I pressed the restart button in 2008. And even though eleven years has passed since I made that decision to restart my life, I never forgot what it did for me and how it helped me start over.

It even inspired me and my law firm to become the largest filers of bankruptcies in the country and in the top two in Florida- all from our offices in Orlando and Kissimmee. The Benenati Law Firm has eliminated nearly a billion dollars of debt for its bankruptcy clients, making the firm one of the top twenty filers of bankruptcy in the nation. Remember, we are local in your hometown. We make our hours convenient for our clients and offer free consultations on Saturdays (9:00 a.m. – 3:00 p.m.) along with our normal business hours throughout the week. Go to https://www.407bankrupt.com/ or call 407-777-7777 to set up a free private consultation and learn more information. Because Life Has a Restart Button.