Along with the massive consumer debts now facing many Californians, came scammers looking to make quick bucks by promising to solve personal financial problems. These scam artists push their "services" through radio, television, mail, internet, and cold calls. When faced with overwhelming debts, thought processes get paralyzed, and desperation overrides good judgment and common sense. Conmen take full advantage of this phenomenon by pretending to be compassionate professionals who can solve enormous financial problems for just a few easy and affordable payments. If you have overwhelming debt, there are legitimate places to seek help. However, telling the help from the harm can be difficult. The cliched rule of using extreme caution when something sounds too good to be true should be followed. Some key points to keep in mind are:
(1) Cents on the Dollar: Credit card companies do settle debts for fractions of the amounts owed, but those amounts are often between 35% to 40% and not "ten cents on the dollar." Once in a great while a debtor will accept a 10% short payoff, but the stars must align just right for this to happen, and such a great outcome should not be expected.
(2) Good Apples: There are legitimate debt settlement companies who are very good at what they do, but you need to thoroughly research a company before hiring it. Use personal referrals from trusted family members or friends when possible. Surf the Internet to search for reviews and complaints on the company you are considering. Meet the staff personally at their corporate business office noting the condition of the office and the personalities of the employees. You need to develop a reliable sense of whether you can trust them with your finances.
(3) Lawyers and Non-Lawyers: If you do not need or want any legal advice, then hiring a non-lawyer might save money. However, if legal advice is needed, only a lawyer can provide such advice. Having a law degree does not guaranty legitimacy, but a California lawyer must be a member in good standing with the State Bar of California to practice law. Becoming a lawyer and setting up a law firm is not something that can be done in a "fly by night" fashion. Lawyers can lose their bar card should they be found responsible for unethical behavior. Lawyers usually have malpractice insurance to cover them in the event of certain problems. In addition, a debt settlement law firm should also practice bankruptcy law. A complete evaluation of the benefits and effects of filing bankruptcy should be part of the initial meeting with any law firm promising to help you settle your debts. Only an attorney can provide legal advice with regard to bankruptcy law.
(4) Credit Scores in the Toilet: When debts are paid late, or not paid at all, credit scores plummet. When creditors get paid only a portion of what they are owed, they tell the credit agencies. Those agencies then decrease the scores to reflect the fact that debts have not been paid in full. Short paying debts causes credit scores to suffer substantial decreases. You should expect this effect.
With regard to how much you should pay a telemarketed company, and when you should pay, for debt settlement services, as of October 27, 2010, the Federal Trade Commission has prohibited for-profit companies that sell debt relief services over the telephone from charging a fee before settling or reducing unsecured debt.
Some debt settlement companies require monthly payments to be made so that a lump sum can offered to creditors as the monthly payments accumulate. These payments should be kept in a bona fide trust account, and a full accounting should be available upon request. Some attorneys 0charge hourly for debt settlement services allowing you to use the attorney for as much help, or as little help, as you need. Some people just want an "attorney letter" sent to their creditors to get the process started. Other people want the attorney to handle everything from beginning to end.
As with most things in life, debts are negotiable. Knowledge based on education and experience makes all negotiations easier and more effective. Unless you have the time to educate yourself and to gain experience before working on your own debt negotiations, you may find it more cost effective to hire someone else.
If you have been scammed by a debt settlement company, you may have two problems: (1) you still have your debts and (2) you need to get your money back. Contact a local attorney to learn how to handle your debts and whether you have any recourse against that company.