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Is Debt Negotiation a Rip Off?

Rochester, New York, Debt Relief Lawyer

Do Debt Negotiation Companies Really Help? In a Word, No.

Are you considering taking your financial problems to a company that makes promises about reducing or eliminating your debt? Perhaps you are already in a debt reduction "program," only to discover that its empty promises have left you feeling hopeless about your circumstances.

Most of what debt negotiation companies do, you can do yourself for free.

I am bankruptcy attorney Peter R. Scribner of Rochester, New York. The truth is that the Attorney General of New York has issued warnings about for-profit businesses that promise to reduce your debt load for a fee. They promise to reduce your debts by making a lump-sum settlement offer. In most cases, you can pick up the phone and do that yourself.

Debt consolidation scams don't help you resolve your debt problems.

I invite you to read the information on this page to learn the facts that debt negotiating companies don't want you to know. Contact my office for a free phone consultation about your legal options, including stopping foreclosure. I have more than 20 years of experience helping people avoid getting ripped off by debt negotiation companies. I know the law and am ready to help you get a fresh start.

Don't fall for any of these marketing terms used by for-profit debt negotiating businesses:

  • "Budget Planning"
  • "Debt Negotiation Program"
  • "Debt Reduction Service"
  • "Debt Settlement Plan"

So-called budget planning companies promise to negotiate down your debt for a percentage of the amount you "save". THESE PROGRAMS ARE ILLEGAL IN NEW YORK STATE under New York General Business Law Sect. 455-457. That is why all these companies are located out-of-state, beyond the control of the New York Attorney General.

My advice?

Don't do it. Why? It's a rip-off. It is illegal in New York for anyone to negotiate your debts on your behalf, except for legitimate not-for-profit organizations or qualified attorneys. After you have given them thousands of dollars and after you realize things aren't working out, your money will be gone and there is, as a practical matter, little you can do about it. The New York State Attorney General can't help you if you are defrauded by out-of-state companies.

How It Works

The promise is always the same. The debt negotiation company will negotiate down your debts, and their "fee" is only a percentage of the money they say they will "save" you. How can you go wrong? Easy: The company collects their fee up front. When the process doesn't work, they will find a way to pin the blame on you. Then they keep the money — your money – that they collected from you up-front. And the people you owe won't see a penny of it.

Here's how the rip-off works:

Let us say that you have credit card debt that totals $20,000. The debt relief company says they can negotiate the total down by half to, say, $10,400, and that it will only charge you a "fee" of 25 percent of the $9,600 you "save". In order to do all this, though, they will need a total of $12,800 (the $10,400 to fund the settlements and their $2,400 fee.) They will require you to pay them $400 a month for 32 months ($400 x 32 = $12,800). The company will then tell you to stop paying your creditors and pay them instead, in order to fund the settlement. After more than 2 1/2 years, when your account with them contains sufficient money to fund a settlement, the company will offer each creditor a 50 percent settlement. So they actually earn their fee well after the program starts, when they eventually negotiate a settlement. BUT THEY TAKE THEIR FEE FROM YOU UP-FRONT, BEFORE THEY HAVE SETTLED ANYTHING!

It gets worse.

Because in the past some of these companies have actually stolen their client's settlement money, these days they often only collect directly from you their "fee" (up front, of course, and usually by automatic electronic transfers from your bank account). They then tell you to set up your own bank account at home and deposit into this account the money needed to fund the settlements. Not surprisingly, many people facing financial stress find it difficult to keep making payments into these local, personal bank accounts.

It usually ends up working in their favor.

What if you pay them $400 per month for a year, and then can't afford it anymore? Too bad, that's your fault. You have breached your agreement with them, and the settlement company keeps its full up-front fee, without ever having to negotiate a settlement with any of your creditors. Good luck trying to get a refund of their "fee."

And while you're sending money to the debt relief company and not paying your debts, your creditors and their collection companies don't go away. The debt negotiating company is not your legal representative. Nothing prevents the creditor from suing you once you stop paying. If a lawsuit is started, then the debt settlement company can't help you. If a creditor wins a judgment against you, it can take all the money in that local bank account you set up to pay for eventual settlements.

As a practical matter, if you had the financial discipline to set aside $400 a month into a separate bank account to fund debt settlements, why would you need the debt settlement company? You could negotiate settlements directly with your creditors without paying an up-front fee to a debt settlement company.

Contact me to learn more about how I can help you resolve your debt problems.