Daily Archives: June 7, 2011

The New Truth About Debt Settlement Companies

“We can settle your debt for pennies on the dollar!”

You don’t hear those ads as much as we used to, because the federal government finally clamped down with FTC regulations 7 months ago.

“Settle your debts for 60, 70 as much as 85% off!”

What these debt settlement companies left off their spiel was that you had to pay them so much a month, until a big amount was accumulated, before they would even talk to your creditors.

In the meantime, the creditors were free to dun you, sue, garnish or otherwise execute a judgment against you.

And, the companies kept their fees out of the first money you sent them, usually regardless of any result achieved.

And every one of their contracts that my clients showed me, stated, in writing, that they could NOT guarantee any particular result.

They left that out of the radio ads and telephone and internet solicitations.

On top of that, they  never mentioned 1099 C income, debt forgiveness income.

So, if they got $10,000 knocked off your credit card balance with VISA, VISA sends you, and the IRS, a form stating you had $10,000 of debt forgiveness income.


The best part of the new rules is that these outfits cannot charge you until they get a result.

So, first they get your debt reduced, THEN they can charge their fee.

Some of these hustlers just folded up shop when the new regs came out.

But, some are still out there, so, watch it!

Check the FTC rules.

For reasons unkown and unfathomable to me, the parallel tax settlement companies are NOT bound by the same rule.

Those ads are all over the airwaves now.

As we lawyers always say, read over any contract, carefully, before you sign it.

Pay not attention to what the other guy is telling you, that phone conversation is NOT in the contract, and you will be stuck with the terms in the written contract when push comes to shove.