We have previously published our own articles and referenced others on this website regarding the hazards of dealing with debt settlement companies. THE HIDDEN RISKS OF DEBT SETTLEMENT PLANS The debt settlement industry has taken a hit as federal and state government regulators have pursued civil enforcement actions and levied fines against some of the debt – settlement participants. ABOUT DEBT SETTLEMENT Many of these companies have now rebranded themselves as debt negotiation companies, which offer almost the exact same service but with a new name. The proliferation of these debt negotiation companies is primarily driven by targeted marketing, and not actual results.
Some of these companies are discovered by consumers who are researching alternatives to bankruptcy. But in many instances the debt negotiation company will contact the consumer directly, usually because the consumer has volunteered their personal information to a third party, such as a free credit report website. THE PRICE FOR YOUR “FREE” CREDIT SCORE Debt negotiation agencies subscribe to receive the personal information, and then evaluate the credit reports to determine whether or not the consumer could be a candidate for a debt negotiation plan. Armed with the information that the consumer voluntarily provided as part of their free credit report, the debt negotiation company can tailor a specific marketing strategy to lure the unwary consumer.
The debt negotiation company will promise that they can collect a monthly payment from the consumer and then negotiate with their creditors to accept reduced balances and satisfaction of the debt. CREDIT CARD COMPANIES LEGAL REQUIREMENTS Once the consumer enrolls, the debt negotiation company will then send a letter to the creditors informing them to stop sending communications to the consumer, and instead to address those to the debt negotiation company. Given that the debt negotiation companies instruct their clients not to make payments to creditors who will allegedly be part of the program, almost all the debts will be in default shortly after the consumer has enrolled in the plan.
In response to these initial contact letter we have found that several of the larger banks will immediately file lawsuits against the consumer if the debt has gone into default. The debt negotiation company may promise legal representation in the event that a lawsuit is filed by one of the subject creditors, but what they usually provide is only a template for a response that the consumer has to fill out and file on their own. No actual legal representation is provided either for responding to the lawsuit or appearing in court. Eventually, that creditor will obtain a judgment against the consumer which they can use to garnish their wages or bank account. GARNISHMENT
When a prospective client comes to our office with multiple lawsuits filed against them, it is almost always because they had enrolled with a debt settlement company or debt negotiation company. The most shameful aspect of the debt negotiation industry is that they are preying on people who are trying to manage their debts instead of avoid them. Almost always the end result is that the consumer is in worse shape after enrolling in the plan, being in default on all of their unsecured debt, facing legal action, and with bankruptcy as the only option. CAN A CREDITOR TAKE MY SOURCES OF INCOME? They may also have lost thousands of dollars in fees for services that yielded no results.
At Leiden and Leiden, P.C., we offer a free bankruptcy consultation for prospective clients in the areas that we serve.[1] WHAT TO EXPECT WHEN VISITING A BANKRUPTCY ATTORNEY We are always willing to suggest a non – bankruptcy alternative if there is one available. If you find yourself in a situation where your existing credit card and personal loan debt has become difficult to manage, please contact us to meet with one of our experienced bankruptcy attorneys.
[1] Free consultation is for prospective Georgia clients located in the counties of Richmond, Burke, Columbia, Jefferson, McDuffie, Jenkins, Screven, Lincoln, Wilkes, Warren, Glascock, and Taliaferro.