Is It Safe to Trust “Debt Settlement” Companies?

According to the U.S. Judiciary, approximately 750,000 non-business-related bankruptcy filings took place across the country in 2019. The number of Americans who turned to “debt settlement” companies to help with their financial troubles was likely far greater. Many people give these services a try before turning to bankruptcy as a last resort. But if you’re struggling under the weight of significant debt, can you trust your financial health and future to these companies?

How Debt Settlement Works

Debt settlement companies leverage your missed payments to get your creditor to settle your debts for less than the total balance on your accounts. If you’ve missed enough payments, the bank or other creditor may sell your account to someone else for pennies on the dollar, assuming they won’t get any money from you. Debt settlement companies try to offer lenders a fraction of the total amount you owe so that they don’t sell to a collection agency. The amount is usually greater than what your lender would get from selling your account.

If you’ve already missed several months of payments on your debts, a debt settlement company might contact your creditors immediately. But the debt settlement company will usually want you to enter a payment plan with them. Under the terms of the payment plan, you make payments to the debt settlement company instead of your creditors, even if you’ve remained current on debt accounts that you want to resolve.

Once the debt settlement company collects enough money from you, they can offer your creditors a settlement of your account that’s more profitable than selling off your account. Most of this sounds fair, but it’s not that simple.

What Debt Settlement Companies Might Not Tell You

Unfortunately, debt settlement companies rarely explain the risks of their services to potential customers. These companies want to make a profit, so some companies scam their customers by taking payments without settling their customers’ debts.

Some of the downsides of working with a debt settlement company include:

• Your debts’ interests and fees will continue to accumulate since you’ll be making payments to the debt settlement company instead of your lenders.
• Your credit will continue to worsen because the debt settlement company will instruct you to send money to them rather than your creditors. That means you are continuing to miss payments.
• Your creditors may refuse to settle, especially if you’re working with a debt settlement company. Many lenders are wise to their tactics and have developed other methods of pursuing full compensation from you.
• Your debt settlement company will charge significant fees, including set-up fees, monthly fees, and a percentage of whatever amount of debt the company can settle. Many debt settlement companies pay themselves before paying any of your creditors, which leaves no funds to pay your lenders even if the debt settlement company already negotiated a settlement.

Why Working with a Lawyer Might Be a Better Idea

If you need help getting out from under unsustainable debt, working with an attorney could prove the better option. Unlike debt settlement companies, an attorney can explain all of your legal rights and options for handling your financial situation. Your attorney can also defend you if one of your creditors decides to sue you.

You need a bankruptcy attorney who can help you with the entire process of resolving your debts. Many debt settlement companies use attorneys or try to pass themselves off as law firms. If you speak to a “law firm” or “attorney” that demands fees to negotiate with your lenders but won’t represent you if your creditors pursue legal action, you’re probably talking with a debt settlement firm.

How Our Firm Can Help

 If you have crushing debt or other significant financial problems, you deserve fair and helpful advice. A Virginia bankruptcy lawyer can provide just that. Have your questions about resolving your debts and getting a fresh financial start from a true professional. Call or contact The Law Office of Steven D. Barnette for a confidential initial consultation about your legal rights and options.