Debt settlement companies promise big, deliver little

February 07, 2013

Debt settlement companies promise big, deliver little

Article provided by Marlatt Law Office Visit us at http://www.marlattbankruptcylaw.com

With a full recovery from the recession still elusive, many Americans find themselves behind on their bills. It is no coincidence that debt settlement companies have recent sprung up, almost overnight it seems. Such companies claim to help people with their financial problems, but in reality operate in an unregulated environment, putting them in a prime position to take advantage of people.

You may have seen the commercials of such companies recently; they say that they can settle debts for pennies on the dollar. What they don't tell you on the commercials is debt settlement fails to work for about two-thirds of clients, leaving most of their customers in a worse financial position than they were in when they sought help, which may ultimately push them into bankruptcy.

As a result of their inability to help people, debt settlement companies have been labeled as an "inherently problematic business" by the Better Business Bureau. Additionally, attorneys general from 41 states, the Federal Trade Commission and the U.S. Government Accountability Office have uncovered evidence of abuse by many such companies.

Experts advise consumers to be aware of the following facts about debt settlement companies and the debt settlement process:
-Debt settlement fees were commonly very high--some running as high as 15 percent of the debt owed.
-Customers are often charged even though the company does not successfully settle their debts.
-Even if the debt is successfully settled for less than the full amount, the customer must pay taxes on the amount that was forgiven
-Creditors are not legally obligated to cooperate with debt settlement companies. If the settlement attempt is not successful, the customer could be responsible for additional interest or late fees.

Bankruptcy may be better option

For many people overwhelmed by debt, bankruptcy is a superior alternative to debt settlement. For one, bankruptcy can often reduce or eliminate a person's debt without tax consequences. Additionally, filing for bankruptcy costs only a fraction of what it would cost to work with debt settlement companies.

Unlike debt settlement companies, creditors are legally required to stop collection activities once bankruptcy has been filed. Because of this, bankruptcy is generally the only way to stop foreclosures, car repossessions or harassing phone calls from creditors.

Bankruptcy is an option for many people, but it is not for everyone. As bankruptcy attorneys are regulated by your state's bar and are legally required to act in your best interests, they will not encourage you to file for bankruptcy if it is the wrong thing for you. If you are considering bankruptcy, contact an experienced bankruptcy attorney to learn about which debt relief options fit your individual circumstances.