While there is no independent research into the success rates of so-called “debt settlement” companies, company reports and anecdotal evidence suggest that fewer than one in four of those who hire these companies actually complete their programs. Even more troubling, up to 10% of debt settlement clients are sued by their creditors while in a debt settlement program. Here’s the way these companies are supposed to work.
First, the debt settlement company gets paid. They typically charge several hundred dollars as an initial “administrative fee” to set up your account. In addition, they will charge you a monthly service fee. The company requires a monthly payment, however instead of sending this money to your creditors, the company keeps your money in trust until there is enough to pay a creditor either the entire balance of your debt, or some agreed-upon reduced amount.
Unfortunately, this process can take several years to complete, depending on the number and amount of debts you owe. In the meantime, your creditors can sue you, garnish your wages, and continue to harass you. In addition, during the entire “debt settlement” process, interest and fees will continue to accrue. It is not very surprising that so few of these programs succeed.
The Washington Post recently reported that debt settlement scams are on the rise. Advocacy groups say the industry’s advance-fee model and lack of regulation have allowed unscrupulous firms to take advantage of desperate customers. Bankruptcy is very frequently a much better option.
People do not choose to put themselves into unfortunate financial situations, but debt settlement companies often make bad situations worse. These companies collect huge fees, grow debts, damage credit scores, and in the end, typically fail. Bankruptcy, on the other hand, offers immediate protection from collection efforts, ends garnishments and lawsuits, and allows you to start getting your finances back on track almost immediately. The typical Chapter 7 also takes about three months to complete, which is far less time than the typical debt settlement plan.
If you are considering either debt settlement or bankruptcy, a good first step is to schedule a free consultation with a bankruptcy lawyer. Licensed in Washington, D.C. and Virginia, attorney Brian Lee can help you assess your financial options. Call 202-448-5136 or email bvlee@lee-legal.com.
tatement from Juniper. The cardholder’s personal and account information have been redacted.