Debt relief ads seem to be everywhere: on television, on the radio, and in newspapers and magazines. These companies use different terms to describe their services like counseling, consolidation, negotiation, mediation, settlement, reduction, relief, elimination, and so many others. They all make promises – some more bold than others. A few of these companies are legitimate. I want to discuss the majority of these companies that are not legitimate and how to identify debt relief scams.
There are several simple warning signs to identify debt relief scams. One warning sign is when the company requires a large up-front fee. The company may even disguise that fee by calling it a “first payment.” Many consumers are surprised when that “first payment” is paid to the debt company and not paid to creditors. That can also result in a thirty day delinquency on a credit report – just the kind of damage the consumer was trying to avoid!
Another warning sign is if the company makes promises that your credit score will not be affected by their program. The truth is that there is not a legitimate debt relief program available that can guarantee that your credit report will not be adversely affected. Any time a debt is not paid according to the terms of the original contract, the creditor is entitled to report adversely. The creditor may fail to report, or may agree to not report at all, but there is no way to prevent a creditor from reporting truthful information to a credit bureau.
Finally, if the company claims that it can protect you from lawsuits or creditor harassment, run away! The Fair Debt Collections Practices Act (FDCPA) provides that third party collectors (e.g. collection agencies) cannot contact a debtor directly once an attorney is representing the debtor. However, the FDCPA does not apply to original creditors (e.g. a credit card company), and it does not apply to non-attorney debt relief companies. If your creditor wants to sue you over a delinquent debt, only a bankruptcy filing can prevent it. Additionally, the debt relief company cannot represent you in court – only a licensed attorney can do that!
You can protect yourself from these scams by consulting an attorney. Only an attorney can explain your legal rights and help you choose the best course of action to resolve your debt problems.