A debt relief company promises to contact a person’s creditors and work out a plan, often for pennies on the dollar, to pay off all debt in a matter of a few short years. Unfortunately, many people throughout the country, including in Arkansas, will choose this generally unworkable and sometimes fraudulent format as opposed to taking advantage of the safe and proven bankruptcy alternative that is provided by federal law. Recently, the Federal Trade Commission obtained a $7.9 settlement from a debt relief company that the agency accused of scamming clients with false promises.
Repeated studies and reports indicate that there is a pattern of misrepresentation by many of these companies. They make fantastic promises to people who are struggling to make ends meet, and who generally have tapped out their credit card limits. Because these consumers are usually sincerely committed to paying off what they owe, they are often sitting ducks for unscrupulous companies with impossible promises.
As it turns out in most cases, the promise of resolving debt quickly and at amounts deeply discounted are untrue, because most creditors do not agree to such dazzling terms. Additionally, the consumers may end up owing more money due to the tacking on of interest and penalties while the customers wait for long months for a promised plan. During these waiting periods, the FTC found that the companies investigated did not even try to get a plan negotiated with the creditors.
Generally, the findings were that debts were not reduced quickly, negotiations waited until threats of litigation were communicated by creditors to the consumers, credit records were not improved, and critically, settlements were not for much less than what was owed. This caused people to end up with more debt, with some losing their homes in the process. Federal law provides a dramatic alternative. A Chapter 7 bankruptcy, for example, will discharge and erase 100 percent of all unsecured credit card and medical debt for qualified individuals and couples in Arkansas in a period that takes about 4 to 6 months, pursuant to the provisions of the U.S. Bankruptcy Code.
Source: rrdailyherald.com, “Color of Money: The anatomy of the debt-relief scam”, Michelle Singletary, Oct. 20, 2015