Home

Posts Tagged ‘debt settlement’

Wednesday, May 4th, 2011

Be Wary of Credit Repair & Debt Settlement Promises

To consumers struggling to make ends meet, advertisements for credit repair or debt settlement may sound like the perfect solution to their financial woes. But in some cases, these services do little or nothing for consumers’ debt problems and instead sap their finances and leave them in need of bankruptcy protection.

Before you sign up for any service that promises to improve your credit, make sure you understand the potential risks involved in such offers.

Credit Repair Scams

Credit repair offers (which are often scams) generally advertise their ability to “wipe out negative information” on a credit report or provide a “quick and legal” way to improve your credit. But the truth is this:

  • You can remove negative information yourself…if it’s false: You don’t need to hire an outside company to remove mistakes from your credit report. Rather, visit annualcreditreport.com and request a free copy of your report. If you see any information that doesn’t belong, simply follow the site’s instructions for contesting the information and the responsible parties will take steps to remove it.
  • Only time can erase true negative information: On the other hand, if your credit report contains damaging information that is correct (e.g. that you’ve missed payments, defaulted on a loan, or something similar), only time (and positive credit behavior) will ease the information’s impact.
  • A blank credit report isn’t good news: Even if a credit repair company managed to erase all negative information from your credit report, having a blank credit report might be a disadvantage for you. Why? Because without any credit history at all, potential lenders are unable to make an assessment about whether or not to lend you money.

Debt Settlement (Scams)

Another commonly advertised financial service is debt settlement. While some debt settlers are legitimate and can be helpful to those in financial need, others are less scrupulous and simply take customers’ money without helping them much in exchange. Here’s the truth:

  • You can settle your own debts: If you’re struggling to keep up with or have fallen behind on some bills, your creditors may be willing to negotiate with you. Why? Because in many cases, creditors stand to make more money from settling a debt (say, for an amount less than the total owed or for a lowered interest rate) than from a customer’s bankruptcy filing.
  • You shouldn’t have to pay upfront fees: Recently passed rules from the FTC mandate that debt settlement firms cannot charge upfront fees for their services in most cases. Some debt settlers, it seems, were taking payments from customers but putting little or nothing toward actual creditor payments.
  • You have a legal obligation to pay your debts: Part of the agreement you have with any lender is that you will pay the bill for any debt you incur – that’s why you have to sign a contract before anyone will loan you money. If a debt settlement company suggests that you will face no legal repercussions from withholding payment from your creditors, be suspicious: in many cases, that’s simply not true.

Tags: , , ,
Posted in Your Credit Score | 1 Comment »

Monday, November 1st, 2010

What New Debt Settlement Rules Mean for You

The Federal Trade Commission issued new rules governing how debt settlement firms can charge consumers for their services. The new rules prohibit debt settlement firms from charging upfront fees for their services, which in theory will prevent some of the predatory practices that cost consumers so much money in the past.

Here’s a summary of some of the potential side effects these new rules might have on the debt settlement process.

Fewer Ads, More Honest Claims

  • A drop-off in ads claiming to settle debts for little money: A ban on hefty upfront fees will mean that simply bringing customers through the door will no longer guarantee income for debt settlement firms, which in turn will mean that dropping money on TV and radio commercials may no longer be worthwhile financially.
  • More selective consumer selection: Now that debt settlement firms cannot charge every customer large fees, they’ll have to more carefully choose which customers they agree to help. This will likely be good news, regardless of your goals. If you’re a good candidate for debt settlement, visiting a debt settlement firm may have a greater chance of helping you than in the past. And if you’re not a good candidate, the debt settlers may be less likely to waste your time and money with their services.
  • Claims made based on all customers: Before the FTC’s rules took effect, debt settlement firms commonly made claims based only on the settlement experiences of their most successful customers. Now, though, companies must advertise using figures that represent all their customers’ experiences, meaning that the figures should more honestly represent what the company may be able to do for you.
  • Some closures of debt settlement firms: Some debt settlement firms may no longer have a workable business model without upfront fees from customers, which could mean closures in debt settlement firms.
  • “Innovative” trickery: And, finally, as with any implementation of new rules, some debt settlers may try to find ways around the new requirements. As always, you are still responsible for making sure your money and financial health is in good hands.

Debt Settlement without a Firm

If you’re struggling with debt and are trying to figure out which debt-relief option might work best for you (bankruptcy, debt settlement, credit counseling, etc.), remember that you can contact your creditors without any help from a third party. By exploring all of these options, you may find the debt-relief option that works best for you.

Tags: , , ,
Posted in Finance 101: Secure Your Future, Predatory Lending | No Comments »

Tuesday, September 28th, 2010

New Debt Relief Rule Means More Truth in Advertising

If you’re struggling with debt and looking for a way to improve your finances, there’s good news on the horizon: beginning Monday, September 27, new rules issued by the Federal Trade Commission prevent advertisers from deceiving potential customers about their ability to offer financial relief.

Here are some of the new protections the FTC’s latest consumer protection rule outlines.

More Honest Disclosures

While bankruptcy is a well-known debt relief option, many consumers try to avoid filing for bankruptcy by opting for debt settlement or credit counseling. While both options work well in many instances, in some cases, dishonest companies pitch too-good-to-be-true offers and consumers end up with more debt than they had before.

Now, advertisers will have to:

  • Announce proposed fees & refund policies No longer will companies be able to get away with advertising how low a price might be (“as little as…”). Now, advertisers will have to base their proposed fees on actual results they can realistically expect to get from a person’s creditors.
  • Estimate likely time frame: After consulting with a customer, debt-settlement companies must offer a good-faith estimate about the likely length of time the process will take, based on a debtor’s individual circumstances.
  • Estimate savings required to settle debts: As with the other new requirements, companies must make estimate how much money an individual customer must save before he has a realistic chance of settling debts based on that customer’s individual circumstances.
  • Disclose potential negative side effects: Rather than glossing over the downsides of debt settlement, companies are now required to review with customers the potential negative impact on their credit reports, the chance that creditors will bring lawsuits against them and any potential tax consequences.

More Honest Advertising

In addition to the above requirements, debt settlement firms are now required to advertise likely savings based on all their clients, not only the most successful ones. Theoretically, this should give potential customers a more realistic picture of how much debt settlement could actually help their finances.

Debt Settlement Vs. Bankruptcy

While there is no one-size-fits-all debt relief option, bankruptcy protection does have some obvious advantages over debt settlement and some other bankruptcy alternatives, which include:

  • Legal protection from creditors: Because bankruptcy functions as part of the federal government, those who file for bankruptcy are legally protected from creditor contact once they file their cases.
  • Federally and state regulated processes: While anyone can start a debt settlement firm, regardless of qualifications, bankruptcy attorneys and judges must meet very specific requirements, so you won’t have to question the background of the people you’re working with.
  • Federally regulated costs: The fees associated with filing for bankruptcy are set by federal laws, so you know you aren’t getting ripped off when you start a case (although fees that lawyers charge may vary). Debt settlement firms, on the other hand, can charge whatever they want – and some unscrupulous firms do, to the detriment of their clients.

Tags: , , , ,
Posted in Finance 101: Secure Your Future, Your Credit Score | No Comments »

Wednesday, May 12th, 2010

Proposed Law Would Place Restrictions on Debt Settlement Companies

Two senators have proposed new regulations that may drastically change the way debt settlement companies do business.

The amendments are part of a larger financial reform bill currently being discussed and were jointly proposed by Senator Charles Schumer of New York and Claire McCaskill of Missouri, the Associated Pres reports.

The laws propose some major changes to how debt settlement companies collect fees, operate and the damages for which they are liable. The main points of the law include:

  • No fees could be collected until a settlement is reached
  • A cap on fees charged. Most companies charge consumers a percent of their debt for the service. Some companies may charge 20 percent of the debt, but the proposed cap would likely be much lower.
  • More disclosures from companies to consumers, including costs and services to be performed
  • No monthly fees
  • Consumers would be able to cancel a debt settlement contract and receive a complete refund of fees
  • More regulatory powers of the industry for the Federal Trade Commission
  • Companies would be subject be subject more punitive damages liability during civil lawsuits

As of right now, these are only proposals for a bill that has not yet passed, and changes could be made. The proposals would not affect any bankruptcy laws.

Tags: ,
Posted in Bankruptcy News and Events | 1 Comment »

Friday, April 2nd, 2010

Debt Settlement Fraud and How to Avoid It

The era of easy credit has left more Americans than ever struggling with overwhelming debt and few options for escaping.

Rather than filing for bankruptcy, many consumers seek credit counseling or visit a debt settlement firm.

But, according to the Washington Post, more and more people are finding that unscrupulous firms are cheating them out of their last dollars rather than helping them escape debt.

What Is Debt Settlement?

Debt settlement is a bankruptcy alternative that, in theory, works like this:

  • You contact a settlement agency: You’ve determined that your debts are a bit beyond your control, so you seek the services of a debt settlement firm.
  • You pay a fee: Because they’ll be doing you a service, most debt settlement firms require you to pay a fee upfront, before they’ve done anything.
  • They work out a plan: Generally, these plans require you, the debtor, to pay a certain amount of money into an account or directly to the firm every month.
  • They contact your creditors: When they do so, they bargain with them, offering to send them a certain amount of cash (generally the amount you’ve sent the company thus far) in exchange for canceling the rest of your debt.
  • Your debt is considered paid: Because your creditors “settled” what you owed with the firm, you will no longer owe those debts.

In reality, though, complaints to the Federal Trade Commission and other consumer protection groups show that many debt settlement firms do not operate as they claim to, and rather than help consumers eliminate debt, they keep the money paid to them and do little or nothing to contact creditors.

The scariest thing, perhaps, is that even though such actions are illegal, debt settlement scams continue to abound and seriously damage the financial wellbeing of Americans.

What You Need to Know

The best protection against debt settlement scams is knowledge. Keep in mind:

  • You can negotiate with creditors: There is no law preventing you from calling each of your creditors and attempting to negotiate for lower payments or for them to excuse part of a debt. While this may be difficult or uncomfortable, it requires no special training (and may be more than a scamming debt collection company will do for you).
  • Be wary of fees charged upfront: Companies that ask for money right away should raise a red flag. There are plenty of free credit counseling services offered around the country – look for one in your area.
  • Bankruptcy is still an option: Some Americans think that BAPCPA, the bankruptcy law that took effect in 2005, made it extremely difficult to seek bankruptcy protection, but many sources suggest that’s not true. If you truly need help from bankruptcy, it’s likely available to you.

Tags: , ,
Posted in Predatory Lending | No Comments »

Tuesday, May 12th, 2009

CBS Early Show on the Dangers of Debt Settlement

This morning on the CBS Early Show Vera Gibbons and Harry Smith discussed the dangers of debt settlement companies.

If you're struggling with debt, you may have looked into or even been contacted by one of these companies. CBS concludes what we know about these companies: They don't offer real debt relief.

In fact, these companies rarely provide real debt solutions. And, as CBS reports, with $1 trillion in revolving debt in the United States right now, many people need real debt relief.

So we want you to watch this report, and remind you that the actions and relief that come out of bankruptcy are protected by the U.S. law.

While credit settlement companies aren't regulated, bankruptcy is overseen by courts, judges, lawyer and legislators. This means that when you file bankruptcy, you receive protection that private companies can't offer. In fact, you may be able to file charges against a creditor if they try to collect debts that were resolved by bankruptcy.

But before you make a decision on bankruptcy or any other debt relief option, be sure to get information and answers to all of your questions.


Watch CBS Videos Online

Tags: , ,
Posted in The Truth about Bankruptcy | 1 Comment »