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Can One Of Those Debt Settlement Companies Save Me From Bankruptcy?

It seems like such a good idea:  Settle your debts, repair your credit, avoid bankruptcy!  The ads are enticing:

  • Save 50% of what you owe!  Avoid Bankruptcy!
  • Have 10K+ in debt?  Cut Your Total Up To 70% & Be Free In 36 Months.
  • Blah, blah, blah, . . .

But do these companies work?  In my experience, NO.

I often hear from people who have tried the debt settlement route before calling me.  Typically, they’ve signed up with one of those companies and paid them about $3,000.00.  Following the company’s advice, they’ve stopped paying on their credit cards, etc.  By the time they contact me, they’re going crazy from the constant phone calls, or they’ve been sued, or their wages or bank accounts have been garnished.

So, what happened?  Why didn’t it work the way they were told it would?

Because of the way the debt settlement business works.  The way it works is that the debt settlement company takes your money and opens an internal “debt settlement account” which they hope to use to entice your creditor to settle for less than is owed.  (Of course they also collect their fees from you during this process.)  In order for you to provide them with the money to build up your settlement account, you must stop paying your credit cards, etc.

Unfortunately, the credit card companies don’t really care what you’re doing with the debt settlement company.  They want their money.  Now. So, when you don’t pay, they send your account to their collection department, or an outside collection agency or a collection attorney.  Pretty soon your life is a living hell with phone calls, process servers, etc.

Look what Good Morning America had to say about these companies:

If it seems too good to be true, it probably is.

So then what should you do if you’re considering debt settlement?

You can try it on your own. Maybe pick up a book on the subject: Nolo’s Solve Your Money Troubles. You might even find it at your local library.

Or you can check out the Colorado Legal Services web site for lots of helpful information.

If you’re unable to settle your debts using those resources, you should call someone who really can help you – an experienced bankruptcy attorney. I can be reached at 719 227-8787.

2 Responses to Can One Of Those Debt Settlement Companies Save Me From Bankruptcy?
  1. Free From creditors
    June 22, 2010 | 4:55 pm

    The major thing that debt settlement and consulting companies over look is asset protection and wage garnishment protection. Wage garnishment is the result of loosing a debt collection lawsuit. Do not be a victim of wage and property garnishment. Get adequately protected. Just read this Article it explains what debt settlement/consulting companies don’t want you to know http://m.cnbc.com/us_news/37795330 Also, be careful in choosing the right company. Make sure they don’t just take your monthly payments into and escrow account and then forget about everything else that matters. There are companies available to help you settle your debts for pennies on the dollar all with out long drawn out monthly creditor payback plans.

    • Bob
      June 22, 2010 | 6:46 pm

      My experience (through the sad tales told by clients who have fallen into the “debt settlement” trap), is that these companies typically take a lot of money up front and, while they wait for the debtor to build a large war chest to use to settle the creditors’ claims, the creditors don’t wait. They ramp up the harassment, sell the claims to collection agencies and start collection law suits. This is way too much for most people to handle. Oftentimes they are way better off, and thousands of dollars ahead, if they just file for protection under the bankruptcy laws. See the recent (June 18, 2010) New York Times article on the subject: http://tinyurl.com/28lhqse

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