I was recently retained by a client who – like many people struggling nowadays – tried to tackle their mounting financial problems by going to a debt settlement company. I’ve said it once, and I’ll say it again: debt settlement companies are a rip-off. The proof is in how empty my client’s wallet is now, and where my client is now.
My client somehow got connected with this outfit out of Tulsa, Oklahoma in October of 2009. According to the terms, she was to pay about $500 per month. Bear in mind, this is $500 she cannot afford – and all it did was force her to rob Peter to pay Paul in more creative (and as I’ll discuss a bit below problematic) ways. After the “fees” were deducted, the rest would be tucked away into a special savings account, which would then be used to settle outstanding debt… of course, when and if the balance reached up to an appropriate limit.
In the first month alone, the set up fee was $9.00, the account maintenance fee was $9.85 and there was an additional maintenance fee of $39.00 (I’m not altogether sure what exactly needed all of this “maintenance”), leaving about $442.15 to deposit into the account to pay debt… but that amount was taken as a “customer fee.”
The next month, out of the monthly payment was deducted the account maintenance fee of $9.95, plus another mysterious maintenance fee of $39, then another customer fee of $441.15 which left a whopping $10 ….which was taken as an “other fee.” That’s a lot of money to push paperwork isn’t it?
The company shouted with glee when they anounced to my client that they had “settled” two accounts for her. Of course, when you settle debts, there can be tax consequences…but I’m willing to bet the company didn’t both telling my client about that at any time.
The total amount of fees my client paid from October 14, 2009 through July 21, 2010: $2,757.79. And where did it lead her?
To me… and filing a chapter 7. Why? Why does someone who can afford about $500 per month to settle a debt now face a chapter 7 bankruptcy? Here are the reasons:
1. Client was sued by a creditor. Credit card companies and other creditors don’t have to play ball with debt settlement companies. And in this case, my client received a summons from a creditor suing her in state court. So my client was left in a rather difficult position: continue paying into a debt settlement/fee gouging plan, and defend herself in lawsuit brought by a credit card company.
2. Also, while the client was trying to get out of debt, she was still using credit. See, all of her excess income was being used to settle her credit card debts pay the ridiculous fees of this pathetic debt settlement company out of Tulsa, Oklahoma. So when she needed emergency stuff, like say… groceries, they were charged. And now that debt is ballooning.
3. Client was robbing Peter to pay Paul and never should have been in debt settlement to begin with. In addition to charging necessities, other necessary medical and dental expenses were curtailed (because the client was really trying to cut back on expenses). This had lead to more anxiety and more stress. The client was trying to pay debt, and at the same time making herself sick.
4. The Client has expenses that cannot be curtailed. Not only does she have her own health things that need attention but she has a disabled elderly relative that she helps out from time to time. In essence, she really couldn’t afford to make those monthly payments.
I know I have said this before (check the blog archives if you don’t believe me): You don’t need a so-called debt settlement company to get a credit card company to take less than what you owe. If you think credit card companies are going to accept less than what you owe, pick up the phone and make the call yourself. If your creditors are not willing to play ball with you, then consider filing chapter 13… assuming that after income and expenses you can actually afford a monthly plan payment. Think of chapter 13 like this: “if the credit card companies aren’t going to play ball with me, I’ll go into chapter 13 and the US Bankruptcy Code can make them play ball.” In other words, if they won’t take up you on your nice offer of paying what might be pennies on the dollar, let chapter 13 do it for you.
But if you cannot afford a chapter 13 plan payment, you certainly cannot afford debt settlement. At that point, it’s really time to think of chapter 7 bankruptcy… which in the long run, ensures that your hard earned money gets to where it needs to go: necessary living expenses.
In addition to losing more than $2,700 in fees, my client also lost something money cannot buy: time. She could have started her chapter 7 process almost a year ago, and by now, have her discharge in hand already living with her fresh start. I have every reason to believe she get that deserved fresh start… but it will probably not come before the end of this year. Folks, in the whole big scheme of things, life is short.
And as a post-script, most bankruptcy attorney fees – including mine – for this chapter 7 (a no asset, no real estate, no other complicated issues) are substantially less what this rip off company out of Tulsa got from my client.
Don’t say I didn’t warn you.
Related posts:
- Another Reason to Avoid “Debt Settlement”
- Thinking about Debt Settlement? Think about this…
- Still Considering Debt Settlement?
- Debt Settlement: The Devil is in the Details
- Don’t Give Collectors Your Account Information
Tags: attorneys, Chapter 13, Chapter 7, credit, Credit and Debt, credit card, Debt Settlement or Consolidation, discharge, Discharge of Debts, Petition Preparers and Fees, Pre Bankruptcy Planning and Strategy, Rip Offs
[...] This post was mentioned on Twitter by Bill McLeod, McLeod Law Offices. McLeod Law Offices said: Just in case you're still looking for one, I have Yet Another Reason to Avoid the Rip-Off of Debt Settlement http://ht.ly/2s9SY #debt [...]
That was a VERY Succinct description of the problem of debt settlers.
You are absolutely correct that people should try to settle themselves, if that does not work, file a Ch13, and if they cannot afford a 13, they were never going to be able to afford a 13 in the first place, so a CH7 is the best choice.
This consumer got snookered by a sleazy, low down scam artist. Its a good thing you can rescue her situation.
You should look to see if you can sue them under laws in your state. Virginia law has rules for debt settlers. We sue those scam artists here.