Debt Settlement - a highly questionable practice!
So you may have heard or read about Debt Settlement. Perhaps not. So what is this mysterious term and what does it mean? Ok, it's not that complicated and some would argue its self explanatory. Settle your debt. Right? Not so fast my friends. Debt Settlement professes to settle debt and potentially can, but the players, the companies and the tactics by which it is often attempted are QUESTIONABLE to say the least.
As an attorney licensed and practicing in Florida, New York and New Jersey, with a focus on Consumer Debt Relief, I am receiving more and more clients who were once signed into an alleged debt settlement program or had already paid exorbitant amounts of money to such companies and their debt was NOT settled. Companies "specializing" in debt settlement often take heaps of upfront money from the debtor, before performing any work, a violation of FTC and State Law. They promise to eliminate all unsecured debt (credit cards, medical bills) and don't inform the debtor that the proceeding is merely a negotiation and not a legal one, that the creditor, credit card company, lender, or debt collection agency do not have any obligation to talk to the settlement company, let alone actually settle the debt for less than is owed. Furthermore, many of these practitioners fail to inform the client that there are IRS TAX CONSEQUENCES when a debt is forgiven or settled (over a certain Dollar amount). The clincher is when they instruct the debtor to STOP PAYING THEIR CREDIT CARDS! This raises a very serious legal issue. Yet still many of these clandestine companies sign up thousands of unassuming hard working Americans on a daily basis.
Debt settlement does not work. Firstly, the debtor’s credit is already damaged at that point. Secondly, the negotiation can be achieved and handled by the debtor themselves without having to pay out money to get rid of debt (Counter-productive in so many ways). It's not as if the settlement company has any formal expertise (perhaps former car salesmen as the exception) or need to follow any formal template or system.
The solution to real, legal and lasting debt relief including credit card debt is working through an attorney licensed and specializing in Consumer Debt Relief. With a qualified attorney the debtor has the ability to view their financial hardships and debt in a total and comprehensive fashion not in a bubble or vacuum of credit card debt alone. One is able to address and tackle the CAUSE and not the symptom and view and address ALL DEBT both secured and unsecured including credit cards, medical bills, tax liens, car repossessions, mortgage debt, judgments, garnishments and foreclosures if applicable. This allows for a plan of action that is comprehensive and does not give the debtor temporary relief or a false sense of security while ignoring the 800 pound gorilla sitting right next door!
Perhaps the debts are so outrageous that the client is better suited for bankruptcy. Moreover, even if the debt is exclusive to credit cards alone and the debtor does not want to or cannot qualify for bankruptcy, an attorney can accomplish the same settlement with better and more effective results at far less cost than that of a debt settlement company.
Bold statements? No!
The empirical data shows that the debt settlement companies "fees" including processing and monthly are so large and unfair that they have put the debtor into a deeper financial hole. An attorney must give a retainer agreement and layout in plain English up front, what he or she is doing for the client and how much it will cost. A good attorney will not take money or start a case if they see that the client's desires are not legally possible or there are no legal defenses. Also, a credible attorney will NEVER make promises or guarantees about success let alone promise total elimination or settlement. The settlement companies promise to eliminate 50% to even 90% of the credit card debt. No one can promise any figures especially when the credit card company or their debt collectors are under no legal obligation to talk let alone negotiate. There is also the all too common problem of multiple creditors and credit cards and the inability of the company to get ALL the creditors into a settlement. Worse still is the failure of the settlement company to contact the true and actual creditor making sure the party they are "negotiating" with is the true debt holder and not a third party collection agency without authorization to issue settlements. Forget about the credit card companies and savvy banks who issue a settlement, subject to reserving the right for a deficiency judgment. In English... “We will let you pay off the balance and reduce it by x% but we still reserve the legal right to sue you and come after you for the x% we temporarily forgave at a later time when you have assets or income." Often these judgments stay in affect for 20 years and lead to wage garnishments, liens and writs of possession! An attorney will make sure that any such settlement RELEASES the client from any future deficiency judgments. Most importantly, the attorney has a trump card and bargaining chip. The credit card companies know that the attorney can eliminate the debtor’s credit card debt legally and in FULL by assisting their client with bankruptcy or by LITIGATING AND SUING THE CREDIT CARD COMPANY, BANK AND COLLECTION AGENCIES.
Sue, litigate you say how? There are a myriad of different laws on the federal and state level that govern lenders and specifically credit card issuers and their collection agencies. An example of the more common being:
* The Truth in Lending Act (TILA)
* State Unfair and Deceptive Acts and Practices (UDAP)
* The Fair Credit Reporting Act (FCRA)
* The Fair Credit Billing Act (FCBA)
* State FDCPA laws.
Dozens of additional statutes and laws exist to PROTECT THE CONSUMER and govern the credit card companies. One slip up on any of these laws and a competent attorney can litigate and sue the credit card company for such a violation. Examples of violations include not offering the client the necessary notices of increases in their APR (annual percentage rate), unexplained late fees, or for mailing statements late. The list goes on and on.
Using an attorney and the opportunity potentially for litigation is a FAR SUPERIOR and a more successful methodology to tackling credit card debt versus signing with an unknown debt settlement company who charge ridiculous fees to the debtor. A debtor gets the best of ALL worlds and solutions with a Debt Relief Attorney. He or she goes into battle with countless armor and weapons ready to fight the debt at its root. The debtor has an experienced and effective counsel at their side and the attorney is equipped and licensed to challenge ALL of the debtor’s debt. Sometimes even making money for the debtor in cases where litigation is appropriate and restitution or punitive damages apply. By hiring an attorney to handle their debt, the debtor is not "losing" their opportunity for debt settlement, since the attorney can and if appropriate will negotiate, provided it brings the same or better results and that all the legalities and ramifications are addressed. This includes addressing deficiency judgments and explaining the IRS tax consequences. Finally, an attorney can and often will drop the ultimate bomb and simply end it all, painlessly and effectively, by filing bankruptcy on behalf of the debtor when appropriate. As to when bankruptcy is appropriate, is for another conversation. Suffice as to say, an attorney should look at its benefits on a case by case basis and analyze it in conjunction with the specific debtors situation.
In summary, we are being bombarded on TV and RADIO about "magical" debt elimination programs and systems. BEWARE, there are many unscrupulous folks and companies out there praying on those in debt often promising illegal and false results while taking loads of the debtors hard earned money while performing no service.
Whichever way you slice it, debt is an ugly game and the faster and cheaper it takes to get out of it, the better. Make sure the methods used and players engaged in them are legal and that you are not digging a deeper hole for yourself. Make your decisions on facts and law and not emotion, or based on cunning and false advertising.
Know your rights and remember while debt is a stressful matter, there are multiple laws in place to 1) Protect you and 2) Offer recourse.
Consult with an attorney who knows how to use these laws and will protect you. Any reasonable law firm should offer a free and comprehensive consultation. Good Luck!