Drowning in debt? Do not know where to turn? How about calling one of those debt settlement companies that you hear on the radio or see on TV?
In theory, their pitch sounds pretty good. Hire us and we will get all of your creditors to reduce the amount that you owe. We will get them to accept lesser monthly payments, and we will get them to agree to not sue you.
In reality, that is not how it works. First things first. When you hire that debt settlement company, there will be a fee, and it will usually be a very large one. There are many fee schedules that are used by these companies, but for the most part, no matter which fee schedule is used, the fee ends up being several thousand dollars. (I've had a few clients recently who have paid debt settlement companies between $ 5,000 and $ 8,000 on $ 40,000 to $ 50,000 in debt – clearly outrageous fees). When the debt settlement company finds that you do not have that much money in a lump sum, they allow you to make payments on the fee. Nice of them, right? Well, they may or may not tell you that they will not begin work on any of your accounts until their fee is paid in full. So, if it takes you 2 years to pay off their fee, that is 2 years that your creditors are not being deal with. Do you think the creditors are going to wait 2 years to sue you?
After the fee is paid, if the company is at all reputable, they will to work. They will contact your creditors and attempt to negotiate payments or reduce the total amount of debt. They may end up being successful to some degree. It is pretty easy to get a creditor to reduce the amount of debt by 10% to 30% once you are in default. It is something that you can actually do yourself with a few phone calls.
On the other hand, debt settlement companies can often make things worse. In my early years at practicing law, I used to represent several large financial institutions. When a debtor would contact my office, or rather, when a debt settlement company would contact my office on behalf of the debtor, we had specific instructions to escalate the litigation immediately. Many creditors do not want to deal with these agencies at all.
In addition, I have found that most debt settlement companies do not assist you at all if a lawsuit is filed. My clients have told me that they have been ignored by the debt settlement companies, or have been told that they can not assist with legal matters once a lawsuit has been filed.
The best advice that I can give to someone who is saddled with debt is to contact a consumer attorney right away. Bankruptcy is an option, but, there are many other options as well. A knowledgeable consumer attorney can review the accounts that you have to see if negotiation or litigation is the best way to move forward, and he / she will do so for much less than the $ 5000 to $ 8000 that these debt settlement companies charge as fees.