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Financial Fraud Law

#1 Threat to America’s Most Indebted Consumers: Debt Settlement Programs (According to Lawyers)

 As few as one in 10 consumers who participate in so-called “debt settlement” programs actually end up debt free in the promised period of time, making the risky schemes the No. 1 threat facing America’s most deeply indebted Americans, according to a new consumer alert issued by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA).
 
The NACBA alert notes: “Already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, America’s most deeply indebted consumers are now falling victim to a major new threat:   so-called ‘debt settlement’ schemes that promise to make clients ’debt free’ in a relatively short period of time. Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses. Even the industry acknowledges – though not in its ever-present radio and online advertising – that debt settlement schemes fail to work for about two thirds of clients. Federal and state officials put the debt-settlement success rate even lower – at about one in 10 cases – meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”
 
Durham, N.C., bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president, said:   “Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America’s most deeply indebted consumers today. Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn.   These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.”
 
Richard Thompson, a Rialto, California, retiree and victim of a debt settlement scheme, said:    “I was told they could settle my $89,000 in debts for a total of $39,000 if I made payments of $1,800 for 22 months. I was contacted about a chance to settle $15,000 debt for $6,000 but my debt-settlement company ignored the offer.   In fact, I paid them a total of $25,200 as they kept on ignoring settlement offers from creditors. I thought they were taking care of me by bringing my debt down, but all they were doing was taking my money.   I ended up with $25,000 more in debt than I started out with.   Before I retired I worked 25 years as a manager, now I have had to go back to work as a part-time security guard to help make ends meet.”
 
NACBA urges consumers to steer clear of any companies that:
 
* Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. A consumer's best bet is to contact the creditor directly as soon as he or she has problems making payments.
 
* Require substantial monthly service fees and demand payment of a percentage of what they’ve supposedly saving the consumer. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee -- a percentage of the money allegedly saved.
 
* Tell consumers to stop making payments or to stop communicating with creditors. If a consumer stops making payments on a credit card or other debts, expect late fees and interest to be added to the amount owed each month. If a consumer exceeds a credit limit, expect additional fees and charges to be added. Credit scores will also suffer as a result of not making payments.
 
* Suggest that there is only a small likelihood that consumers will be sued by creditors. In fact, this is a likely outcome. Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against the consumer. Creditors have the right to sue to recover the money they are owed. And sometimes when creditors win a lawsuit, they have the right to garnish wages or put a lien on the consumer's home.
 
* State that they can remove accurate negative information from a consumer's credit report. No company or person can remove negative information from a credit report that is accurate and timely.  
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