Lately in Augusta we’ve been hearing radio ads from different companies that advise consumers that there are laws the credit card companies do not want to disclose, that would require credit card companies to accept less than the full balance of the amount that is owed. These programs are touted as an alternative to a consolidation loan or bankruptcy. Unfortunately, these ads are also exceptionally misleading.
While there are state and federal initiatives in place to assist consumers who are struggling with home mortgages or student loans, there are no such programs in place for credit card debt. There is no requirement that a credit card company must accept anything less than the full amount owed, even if the cardholder can demonstrate financial hardship. While some credit card companies may offer reduced interest/no interest repayment plans while a cardholder is experiencing a temporary financial hardship, they are not obligated or required to do so. Such programs are usually offered to cardholders who have had a good history of payment, and are suffering a short – term financial deficit.
The program that is being offered by these companies is what is commonly referred to as a” debt settlement plan”. In this instance, the company contracts with the consumer to collect money on a monthly basis, which is then used to make a lump–sum settlement payment to the credit card company. The consumers are instructed to stop paying on the credit cards. While they are not required to do so, many credit card companies will accept a lump–sum settlement of an outstanding card balance, depending upon the extent of the default and the age of the account. Unfortunately, if a consumer has multiple credit cards, they may find that the credit card companies are not willing to patiently wait as other card companies are paid off. In addition, the consumer may not obtain any significant financial advantage, as interest and penalties will continue to accrue on the credit cards while money is being saved up to make a lump-sum payment. So even if a credit card company is willing to accept a lump-sum settlement in the amount of 80% of the debt, the consumer will not have saved any money if the credit card debt had increased 20% or more while the money was being accumulated.
While a consumer may be willing to settle a very old debt for a small percentage, there is little incentive for a credit card company to reduce the balance for a consumer who had demonstrated a consistent pay history over a period of time.
If you are considering one of these programs, you should probably do your homework and determine if any complaints have been filed with any federal or state regulatory authorities, such as the Federal Trade Commission, or Consumer Financial Protection Bureau. You may also wish to contact the attorney general for your state to see if there have been any complaints about the debt settlement company, or if they are even authorized to do business in your particular state. For instance, a debt settlement company is prohibited from operating in the state of Georgia unless they have an attorney who is licensed to practice law in the state of Georgia for representation of their clients. Unfortunately, many of these programs oversell what they can provide, and deliver minimum, if any results. Our office has represented numerous debtors who have attempted a debt management plan, but eventually had to resort to bankruptcy after a debt collection lawsuit was filed by one of their more impatient creditors.
Most bankruptcy attorneys in the CSRA offer a free consultation. If you are struggling with credit card debt, it would certainly make sense to take advantage of the free consultation, so that you can learn your rights and how to protect your property and assets under Georgia law. In addition, consulting with a bankruptcy attorney may prevent you from making a costly mistake with a “debt settlement company”, which will only waste your time and limited financial resources.