Today, we have something a different… our first guest blogger: a former client who shares her perspectives on her journey into, through and out of bankruptcy.
Posts Tagged ‘Debt Settlement or Consolidation’
CareOne: What’s Behind Those Commercials?
Thursday, February 18th, 2010
As I was watching the news the other night, I saw this commercial for CareOne Credit. The name rang in my head – and then it hit me: I had recently read about them in a case while doing some research Since the judge’s observations in that case and his comments were stuck in my head – and since I am seeing these commercials more and more - I thought I would share them here.
The Case
In late 2006, Debra Wood was struggling with debt – and after apparently seeing an ad, she contacted CareOne Credit Counseling. When she contacted CareOne, she was referred to Consumer Law Associates, LLC (CLA). CLA then gave her documents to start her into a debt management plan – which would be administered by Ruther and Associates, LLC (RA). They describe themselves as a “national law firm dedicated to consumer debt reduction.” As the facts of this case unfold, you’ll see what that description is inaccurate – at best.
Another Good Reason to Stay Close to Home
Wednesday, May 20th, 2009
One of the best things about summer is the local produce you’re likely to find not just in the supermarket, but on road side stands. While I admit I’m a bit biased, when I was a kid, there was no better place to get tomatoes and sweet corn than the small farms on Aquidneck Island. That’s probably going to tick-off the good folks in Little Compton, but hey, I know what I know. I am sure that I can find a place online that would ship them to me, but it’s not the same as pulling over to the side of the road, smelling the air, and reaching into your pocket for a few bills to get some good stuff. Law firms advertise online, as do credit counselors and so-called debt settlement and consolidation firms…and there are hundreds if not thousands of companies and firms offering assistance to people struggling with debt. Is it a good idea for Massachusetts consumers stay “local” when they are looking for resources to help them deal with their debt? This very question came up today when I was talking with a prospective client.
For a variety of reasons, the family is in a lot of debt and exploring options. There’s bankruptcy (and I can help them with that), and there’s credit counseling (which I can offer a recommendation). There’s also debt consolidation and debt settlement, but ironically, there do not seem to be too many local companies that offer such services. Perhaps it is because those services are usually little more than a scam. Perhaps it’ because it’s been tried
The clients were considering the “Consumer Law Group, PA” located in Florida. I like Florida – I have not been there in years – but it’s a pleasant place to be. And while I like oranges, I don’t feel the need to go to Florida to get them.
Fortunately, the client did some research on this outfit on their own. They learned that the “Consumer Law Group, PA” had only been around since November 2007. They found websites where people had some very unfavorable things to say. More than one person, actually. They also learned that in less than two years period, they earned an exceptionally low BBB rating. That was their wake up call. It dawned on them: “why are we not dealing with a local business who can help us?”
While this is arguably yet another reason to stay clear from any outfit claiming to offer debt consolidation or debt settlement services (which again, are a scam), I think it is also important to consider going with someone local. It doesn’t matter if it is an attorney, a credit counselor or a lender who may be trying to help you refinance…. why go with an out of state outfit state? After all, we are talking about your money, your life, your family and your future.
For those reasons, it’s important to get good help from someone who knows what they are doing. And frankly, if these issues are important enough for you and your family, then you should be able to look that professional square in the eye. That’s hard to do when they are a few states away.
Still Considering Debt Settlement?
Tuesday, May 12th, 2009
In the past, I have written and warned readers here about it. It is simply not all it is cracked up to be. From CBS News/The Early Show:
[C]onsumer advocates warn that a majority of the companies can’t or won’t deliver on their promises to reduce your debt. The National Foundation for Credit Counseling recently explained that, “A settlement company may suggest that you stop paying your creditors and instead begin making deposits into a special third-party account. The settlement company will attempt to negotiate a settlement offer with your creditor once enough money relative to the debt is on deposit. This may take six months or more, although the exact length of time will vary with circumstances. During this time, the balance on your debt can continue to grow if interest and various penalty fees continue to be charged by your creditor. As a result, you may owe more than when you started and your credit may suffer.”
Even worse, there have been many instances where none of this money ever makes it to creditors — the companies simply steal it, Gibbons points out. Plus, a growing number of credit card companies refuse to work with debt settlement groups. Of course, a group probably won’t tell you that until after you’ve paid them.
WhatsaMatta with WaMu?
Tuesday, September 9th, 2008
So yesterday I received this letter from WaMu:
Dear William McLoud [sic]:
Our customer (my client) informed us of his/her intent to file (chapter 7) bankruptcy. We realize this decision was not an easy one. We would like to resolve this matter and offer an alternative that may minimize the negative impact that filing for bankruptcy can have on your client’s credit and employment opportunities.
As of today, the balance on the (credit card) account referenced above is [$2,500]. However, you may elect to settle the balance for 60%, or [$1,500], and your client will be under no further obligation. Simply alert us of your acceptance and remit the settlement payment.
If your client is unable to pay this amount in full, or if you have any further questions, please contact our Bankruptcy Department…
Today’s News…
Friday, March 21st, 2008
From FoxBusiness: a look at the legislation Congress is mulling over to give bankruptcy judges more authority to modify residential mortgages.
Have you ever heard those radio commercials touting “debt elimination?” It usually has an announcer proclaiming that “my plan does not reduce your debt, it eliminates it!” One commercial in particular on a local station also has a speaker who says “using this system, I will be able to pay my 30 year mortgage in just three years making only the money I am making now.” That sure does sound too good to be true. Well, it was a bad week for two scam artists from California who ran such an out. The Mercury News reports that on Tuesday they were sentenced to more than 25 years in prison for mail fraud.
Actually, this bit is yesterday’s news, but it’s worth mentioning: The New York Times reports that the mortgage crisis is not only affected lower and middle income borrowers. According to the report “affluent consumers with annual incomes of $100,000 or more … are increasingly being ensnared in the home mortgage crisis.”
And finally, here’s something we might want to think about this weekend: is the US Dollar on its last leg?
Another Reason to Avoid “Debt Settlement”
Tuesday, March 11th, 2008
I have written about so-called “debt settlement” companies that tout a benefit of paying off your debt quicker and cheaper. In the long run, consumers are left with less money and still at the door of the bankrutpcy court.
From the March 6 issue of Business Week:
The booming business has caught the attention of prosecutors and regulators, who say such programs can leave consumers in worse financial shape. Fees for the services run high. And when banks don’t agree to settle—if the settlement firm contacts them at all—consumers get hit with late charges and penalized with higher interest rates, leaving borrowers with even more debt than when they started.
You may have missed…
“Be Debt Free in only 18 months!”
Thinking about Debt Settlement? Think about this…
And Speaking Of Credit Counseling Predators…
Credit Counseling Predators
“Be Debt Free in only 18 months!”
Monday, October 29th, 2007
There are ads on local radio stations that make this declaration. Earlier this month, the Federal Trade Commission filed a lawsuit in New York against a couple that operated a variety debt settlement companies: The Debt Settlement Company, The Debt Elimination Center, Pay Help, Inc., Money Helps and Edge Solutions. According to the FTC, unsuspecting consumers looking for help visited websites such as idebthelp.com and moneycares.com and lured into a “debt meltdown program.” According to the FTC,
The complaint alleges that, as a result of being in the defendants’ program, many consumers experience substantially increased debt because of late fees, finance charges, and overdraft charges, and suffer damage to their credit rating because of significant negative information such as late payments, charge-offs, collections, and garnishments, all of which may appear on their credit report for up to seven years.
Read more from the Arizona Republic.
Read more from the Federal Trade Commission.
Thinking about Debt Settlement? Think about this…
Thursday, June 7th, 2007
People explore all of their available options before filing bankruptcy. Bankruptcy is not for everyone struggling with debt. Some may benefit from credit counseling, while others may benefit from loans from family members. However, there is one option that I am pretty sure does not work for most people I meet: “debt settlement” companies. In many cases, I have represented people who unsuccessfully tried this option and only ended up losing their money and adding to their stress. A conversation I had today with a prospective client reminded me that these “debt settlement” companies are still lurking out there, and people struggling with debt need to think about these issues before signing on the dotted line.
Debt Settlement: The Devil is in the Details
Monday, January 2nd, 2006
People do not like to file bankruptcy, and most people explore any alternative possible before calling on a bankruptcy attorney. Many times, people contact me seeking “debt settlement” or “debt restructure.” It sounds better than bankruptcy and for a very small number of people with debt, it might be an alternative worth exploring. But like many things, the devil is in the details. There are some myths and misconceptions about debt settlement that consumers need to know about.
Myth: Settling debt will “look better” than bankruptcy
Fact: Not so much. Assuming a debt is paid for less than what was contracted for in the promissory note or credit card agreement, creditors are permitted to report the account as “settled”, which can be a derogatory remark on the credit report. This is not the same thing as “paid as agreed” or “paid in full.” Payments for less than contracted for may result in a negative entry on the credit report.
Myth: Settling debt is cheaper
Fact: Again, not so much. Most creditors offering settlements – and most companies out there who offer settlement programs – do not tell consumers that there are taxes that may come due as a result of the settlement. Creditors are allowed, in most circumstances, to issue a Form 1099-C for the amount of the debt that was “forgiven.” In other words, the amount of money that was actually “saved” is going to be taxable income.
The problem arises because not only are consumers not told this fact, but it is not uncommon for a consumer to not receive the Form 1099-C, even though it is filed with the IRS. The consumer only learns of a problem a few years down the road when the IRS sends the consumer/taxpayer a notice identifying underreported income. The notice will also seek the taxes, and the penalties.
Additionally, companies offering debt settlement will often charge a fee based on the amount they “save” the debtor. This is usually measured as the difference between the amount the creditor says is due, and the amount actually paid as a settlement. This further erodes any true savings.
Here’s an illustration: A consumer with $15,000 in credit card debt, using a company offering “debt settlement”, secures an agreement: One lump sum payment of $5,000 and the debt is “settled.” Taxes will need to be paid on the $10,000 “saved” – and for this example, let’s assume that it’s 30%. Plus, the fees due the company who secured the “savings” gets a percentage of 15% of the “amount saved.” So the debt for $15,000 ultimately costs almost $10,000 to resolve.
Myth: Debt settlement companies will help you get out of debt faster.
Fact: In most cases, you will end up in bankruptcy anyway. Many debt settlement companies are little more than parasites – offering “counseling” and “debt help” to people while taking the consumer’s money and not doing a thing. How do I know? Many of them have ended up being my clients.
If you’re contemplating “debt settlement”, read the fine print on the company offering it. In many cases, they will tell you to stop paying your bills while you make monthly payments. The monthly payments go into a bank account, which is usually in the consumer’s name, but the consumer has no direct access to it.
The debt settlement company will not try and settle debts with creditors until a sufficient balance is in the account. In other words, when there is enough money in the bank account to make negotiations worthwhile, then they start discussing settlement. Meanwhile, the accounts get sent to collection, the phone incessantly rings, and lawsuits get filed against the consumer. By that time, creditors are not in the settling mood.
What’s worse is that the fees charged by these companies is obscene – especially since they perform little to no service. Many companies charge a monthly payment – such as a percentage which is deducted from the monthly payment. Companies may also charge two months of payments, which are payable at the beginning of the “debt settlement program.” Thus, consumers do not actually start making any progress on debt resolution until they are poorer by two months payments (which in many cases, is when the phone starts ringing).
When the consumer gives up, trying to get the money back can be a hassle….and particularly painful, since in many cases, consumers are realizing they have been taken.
Myth: Anyone can benefit from settling debt.
Fact: Debt settlement can work for those consumers who have (1) sufficient income or assets to pay the settlement payment as well as the fees and taxes; and (2) are not so burdened by the debt (or by other debt) that settlement would be counter-productive.
For example: A homeowner making $50,000 per year and facing only $5,000 in debt might benefit from settlement since there may be income and/or home equity available to pay the settlement amount, and mortgage interest deductions might off-set any potential negative tax ramifications….this assumes, of course, that there is cash on hand to pay the settlement amount. However, if that same homeowner has little to no equity in a depressed real estate market, is concerned about future employment and income, and the debt is 25, 30 or even more than 50 percent of gross income, debt settlement might end up being counter productive.
A consumer contemplating debt settlement should talk to a debt settlement company and get all the details of the programs offered. Then, the consumer should take those details – along with all of their financial information – to a bankruptcy attorney who can give competent counsel based on the consumer’s individual situation. No respectable bankruptcy attorney is going to lead a consumer to bankruptcy when there are more suitable and productive options available.
Simply stated, the same cannot be said for many of these debt settlement companies. One of the more infamous is AmeriDebt and its related companies who bilked thousands of dollars from debtors who in most cases, just wanted to do what they though was the right thing. Sadly, in my experience, many who tried these companies without first seeking legal counsel ended up poorer, and in bankruptcy anyway….after months, and even years of struggling. The fact is, these companies prey on people who are under pressure with unmanageable debt. They are adept at offering hope to people who find themselves in what they believe is a hopeless situation. Any consumer who thinks that a debt settlement program is too good to be true would be wise to consult with legal counsel to see if it is indeed the case.
