Friday, May 29, 2009

Debt Solutions companies under attack by authorities

Debt settlement companies are for-profit companies that claim that they can eliminate consumers’ debts by negotiating settlements with creditors that are a fraction of the consumer’s outstanding debt. If you watch television these days, their advertisements show up as often as those for drug companies. Many of these companies accomplish very little for consumers while charging exorbitant fees and make empty promises that leave consumers in worse financial state then when they began.

These debt solution companies prey on desperation, offering false hope and no help, often driving these consumers even further into debt and ruining their credit.

Some debt solution companies advise consumers to do one of the following:

1. Stop paying debts

The Problem: this causes customers to face unforeseen late fees, additional interest, increased collections attempts, and even lawsuits by their creditors.

2. Stop paying debts and, instead, to place money into savings account so that enough money will accumulate to allow a settlement offer to be made to any creditors.

The Problem: The debt settlement companies’ saving plans are often extremely unrealistic, so that the promised negotiated settlements do not occur, but the debt settlement companies’ still take their fees.

Also, the debt settlement plans are generally premised on consumers aggregating savings, over one to three years, from which both the payment of the company’s fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their precarious financial situation.

3. Ignore collection efforts or refer those efforts to the debt settlement company.

The Problem: it doesn’t work and consumers continue to find themselves subject to creditors’ collection efforts, including lawsuits, and consumers’ credit histories are further damaged when the consumers stop paying debts.

4. Seek additional sources of funds through means such as selling their blood plasma, mowing lawns, cutting down on car insurance and borrowing from their neighbors and church.

The Problem: Even for those consumers who can meet the requirements set out by a plan, their amount of aggregated savings is ordinarily insufficient to settle their debts. As a result, many consumers find themselves worse off financially because of these debt settlement plans.

I suspect that much litigation will arise against debt settlement companies who engage in this type of conduct.

To read more about the actions being taken by the New York Attorney General, see here (

Chris Hellums may be contacted at