Are debt settlement companies really helpful?
Debt Settlement companies claim they can reduce or eliminate your credit card debt. However, many of the for-profit debt settlement companies simply take your money and leave you in a worse financial position. In fact, several of these companies falsely claim to provide legal services. Fortunately, Mississippi law prohibits many of the activities these companies engage in. See Miss. Code Ann. § 81-22-1 et seq.
Consumers in Mississippi and nationwide are being preyed upon by companies who target honest people who want to pay their debts. Dealing with debt settlement, debt relief and/or debt consolidation companies can be risky. Generally, these companies promise more than they can deliver. They claim to reduce or eliminate your credit card, medical and department store debt. Tragically, many folks spend thousands of dollars trying to avoid bankruptcy, but end up being forced into bankruptcy by their creditors. See Debt Settlement: Fraudulent, Abusive, and Deceptive Practices Pose Risk to Consumers, GAO-10-593T (April 22, 2012).
Most of the debt settlement “programs” consist of:
The consumer receives some kind of solicitation materials. The consumer calls the debt settlement company and is sold on the program. The consumer then signs a standardized debt management contract and special purpose account agreement. The consumer makes monthly payments to the saving account for fees to be collected by the debt settlement company and for funds to accumulate for settlements with creditors. The debt settlement companies tells consumers to stop paying their debts and stop talking to their creditors.
Most folks are only able to endure the stress of phone calls and creditor lawsuits for a few months. In the unlikely event that consumers survive the debt settlement companies upfront fees and creditor harassment, the special purpose account is supposed to accumulate funds from which the debt settlement companies attempt negotiations with consumers’ creditors, in exchange for additional fees.
If you have been a victim of a debt settlement company, give me a call for a free consultation.