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The Better Business Bureau has received more than 3,500 complaints about debt settlement companies since the recession started. Consumers that were struggling with credit card debt and unpaid medical bills complained that they ended up deeper in debt by paying absorbent fees to debt settlement companies or were sued by creditors after failing to make payments. Debt settlement companies typically charge large upfront fees that are typically 15% to 20% of the customer’s outstanding debt balance. In exchange, debt settlement companies promise to negotiate with creditors to reduce the unsecured debt by 50%. The FTC ruled that these companies will no longer be allowed to charge an upfront fee. The new ruling will go into effect October 27, 2010 making it difficult for these companies to stay afloat. After Oct. 27th debt settlement companies will only be able to charge a fee once a customer’s debt has been reduced, settled or renegotiated. The new Federal Trade Commission regulation will also require debt settlement companies to disclose to customers how long it will take to get results, how much it will cost, and any negative consequences that could arise from the process. The major problem is the debt settlement company gets paid a large fee and the clients end up eventually dropping out of the debt settlement program only to file bankruptcy because all their creditors continue to harass them for payment and eventually end up suing them. In California for example, once a creditor gets a judgment they can garnish your wages or levy your bank account. Additionally, customers can go deeper into debt when they hire a debt settlement company because they stop making payments on their credit cards causing late fees and interest charges continue piling up. To make matters worse all the negative reporting continues. The way debt settlement works is, you make monthly payments in a separate account maintained by the debt settlement company and they try and negotiate a discount with your creditors. The problem is, the creditors don’t always cooperate and escalate collection efforts, typically filing a lawsuits and getting judgments.
With the new FTC ruling these debt settlement companies can only have their clients put monies in an account if it’s maintained at an independent financial institution under a customer’s name.These clients must also be able to withdraw the money at any time without penalty. Obviously this will make it extremely difficult for these debt settlement companies to operate and pay for their marketing and sales force. The BBB warns consumers to be leery of any company that charges upfront fees and makes promises to reduce your credit card debt by as much as 50%. The Better Business Bureau also suggests that struggling borrowers first try contacting lenders directly to negotiate debt, however, they typically won’t budge. Alternatively, borrowers can seek help from a bankruptcy attorney. Filing bankruptcy is the only sure way to legally get debt relief and stop creditor harassment. A Bankrutcy Attorney can file bankruptcy Chapter 7 (if you qualify) and completely eliminate your debt, or Chapter 13 to get you on an affordable repayment plan. When you file bankruptcy you are protected under Federal Bankruptcy Law and that’s that! If you are in a debt settlement program or considering debt settlement then the bankruptcy attorneys at the Law Offices of Zhou & Chini would like to help. While bankruptcy may not be for everyone it’s a Federal Law that your creditors must recognize. The Law Offices of James D. Zhou and Ronald Chini offer free consultations to see if filing bankruptcy is right for you. We have over 10 locations throughout California to serve you. Please contact our bankruptcy attorneys at (888) 901-3440 to schedule a FREE consultation. If you would like more information on filing bankruptcy please visit http://www.bankruptcyattorneyincalifornia.com/.
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