You have probably noticed advertisements for various debt settlement companies. Debt settlement companies claim that they can negotiate with creditors to lower the amount of debt that is owed. However, most of these companies are just scam artists that will end up costing you even more money than you owed before contacting the debt settlement company.
Typically, debt settlement companies ask the consumer to pay an upfront fee. The company promises to negotiate a settlement with creditors for less money than what is currently owed. Also, the company will set up a repayment plan and require you to place money in an account that will be used to repay your creditors. Usually, it will take 6 months to a year before there is enough money to start settling accounts. During that time the consumer makes no payments to creditors.While this may seem like a great solution, you run the risk of having your creditors file garnishments against your wages or other legal actions. Additionally, your credit score will suffer as a result of not making the required monthly payments on your debts.
During the recession, debt settlement companies began to appear at a rapid rate, attempting to cash in on people suffering from mounting debt. There have been thousands of complaints filed with the Better Business Bureau in all 50 states against debt settlement companies. The complaints allege that instead of having their debts renegotiated or settled, people were driven into even deeper debt, were sued by their creditors, and had their wages garnished. People have also experienced problems getting their money back from debt settlement companies after they decided to not continue the debt settlement process.
The Better Business Bureau website details some red flags to look for when dealing with a debt settlement company. The red flags include high upfront fees, claims that the process is quick (debt settlement typically takes years to complete), and promises that seem to good to be true (like reducing your debt by 50%). Some of the debt settlement companies that have received the most complaints include Debt Settlement America, Financial Freedom of America and Credit Solutions,Clear Your Debt, and Swift Rock Financial Solutions.
Instead of talking to a debt settlement company and potentially falling for a scam, Morgan & Morgan recommends that you speak with an experienced bankruptcy attorney. When you file for bankruptcy, the courts place an “automatic stay” on all your debts. That means the creditor can no longer attempt to collect any debt and stops foreclosures, wage garnishments, and lawsuits.