New York Times: Peddling Relief, [Debt Settlement] Firms Put Debtors in Deeper Hole

A recent New York Times piece confirms a lot of what readers of A Clean Slate already know: A lot of debt settlement outfits are scams and don’t deliver anywhere close to what they advertise.

I have written about debt settlement here and here. These are some of the most visited posts on A Clean Slate. To summarize my views of debt settlement, it is a good idea for relatively few people and for the rest it’s a really poor approach. And if you are going to do debt settlement, use a local attorney rather than a debt settlement firm.

I happened to have had this discussion a few days ago with an unlikely source. I was riding with my son, who has just finished seventh grade, in the car listening to the radio. An advertisement came on for a debt settlement company. My son said to me, “It bothers me to hear these ads about debt settlement. They advertise getting rid of the debt but they charge a lot of fees. The people could just call you and you would get rid of their debt for a lot less money.”

Exactly. Debt settlement is generally a more expensive path to a less desirable result.

A chapter 7 bankruptcy might cost a couple thousand dollars in fees and a chapter 13 bankruptcy maybe twice that amount. How much debt will that get rid of? Probably all of it. And I usually can tell before we file which debts will be discharged and what the total cost will be.

You can’t say that about debt settlement. I know this because I represent clients in debt settlement under certain circumstances. Even in bankruptcy representations, I routinely field settlement offers from credit card companies and the settlement percentages are all over the map. It is a lot harder to predict what the results will be in a debt settlement situation. As noted by the FTC, the success rate for debt settlement companies that the FTC studied was less than ten percent. No one can predict with any degree of certainty what settlements can be achieved or on what terms.

Something to keep in mind if you are having financial difficulties.

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  5. Since we’re talking about New York Times: Peddling Relief, [Debt Settlement] Firms Put Debtors in Deeper Hole | A Clean Slate — The Bankruptcy Law Blog, Some companies and agents are also incapable of making deals which favors your interest. The best thing that you should do is to verify the credibility of the company or the agent that you are hiring to make the debt settlements for you.

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