How Can I Avoid Debt Consolidation Scams?

How Can I Avoid Debt Consolidation Scams?

When you are deep in debt, it is natural to want to take charge of your situation and start working to get your financial life under control. Unfortunately, many companies are banking on you feeling this way, and they are waiting in the wings to offer you a deal — one which may often sound too good to be true. They promise to get you out of debt without having to repay what you owe or filing for bankruptcy. These companies may promise to negotiate with creditors or reduce repayment obligations, all while charging an exorbitant fee. Most — nearly all — of these businesses will then fail to deliver on their promises. The debt-holder will then still be responsible for old debts on top of owing money to an unscrupulous company that only magnified their problems.

While it is certainly not legal for these companies to operate in such a manner, it can be challenging to determine upfront if these debt consolidation services are scams or legitimate. 

The Federal Trade Commission (FTC) prosecutes hundreds of cases against such companies across the country each year. They, in partnership with the Consumer Finance Protection Bureau, have also successfully implemented many consumer protection rules in order to keep the public safe from these predatory companies. However, new companies pop up often, and it is important to be able to evaluate these services before signing your debt over to a scam. 

If you are worried about your ability to repay debts or want assistance managing creditors, your first choice can be an experienced bankruptcy attorney in Florida who can inform you of your options and help protect you from falling victim to common scams. Here are some important signs to look out for that might indicate a service provider is trying to scam you:

They Promise Something That Sounds Too Good to be True 

While it sounds amazing, there is no way for a debt consolidation company to guarantee that you’ll pay “pennies on the dollar” or that your debt will virtually “disappear.” Getting out of debt is possible, and there are legal, state-approved services and lawyers who can help guide the way for you, but they won’t be promising that it will be quick, easy, or painless. If a company is advertising easy relief, discounted debt, or worry-free agreements, be wary.

They Ask for Payment Upfront

Even though you should only pay for services after you have received them, often debt consolidation companies will ask you to provide payment before they do any of the work that they advertise. If the company is asking you to pay fees before they’ll contact your creditors, you should proceed cautiously with this service provider. The FTC has ruled that this practice is almost always illegal, though that won’t stop these companies from requiring it anyway.

They’ll Hold Your Payments Before Settling Your Debt

When working with a debt settlement service provider, they will often ask you to make payments to them — with the promise that it will eventually be applied to your lump-sum settlement agreement. However, they are essentially just demanding that you save money and charging you a service fee for helping you do it. In order to avoid these fees, it may be a better idea to save up your money first yourself, and then contact the for-profit service provider once you have the full amount you owe.

You’re Told to Stop Contacting Creditors or Stop Paying Your Bills

While it may sound nice to be able to take a break from interacting with your creditors, employing these service providers does not give you any legal protection for doing so. The only way you can be legally protected from contact with creditors is if you have petitioned for bankruptcy and are awarded an automatic stay.

The debt company may also tell you that you don’t have to pay your bills so that you can save up your settlement amount as quickly as possible. Even though these companies may promise that you can do this, creditors may not be in agreement. What then happens is that debt holders incur fees and other penalties because of non-payment while their debt continues to compound.

They Guarantee Debt Elimination

The only way that you can legally discharge your debt is by participating in the bankruptcy process or paying them in full. These companies may even manage to get in writing that your debt is discharged, but it won’t have the same legally binding effect as a Chapter 7 or Chapter 13 bankruptcy debt discharge.

It Touts a “New Government Program” to Erase Your Debt

While there are occasionally government programs to help ease the burden of debt, they are generally programs that will let you delay payments, delay your interest from accruing, or even reduce your payments temporarily. However, it is extremely unlikely that a new program will ever forgive your debt entirely,

If there is a new government program that you’re interested in utilizing, you would be able to access it without the help of a fee-charging agency. If you want to be educated on all your options, you should reach out to Hoskins, Turco, Lloyd & Lloyd to speak to an experienced financial law attorney.

Steps to Take Before Employing a Debt Relief Company

If you are in a place on your financial journey that has you considering hiring a debt relief or consolidation company to help you out, there are some steps you should take before signing any paperwork.

Make sure you take the time to review all your options. While many for-profit debt relief companies are predatory, there are many agencies that are willing to help without profiting from your misfortune. You may be able to receive credit counseling, take out consolidation loans from a bank, reach a settlement with a credit card company, or file for bankruptcy. 

It is always a good idea to reach out to a professional experienced with financial law matters, such as a lawyer or certified public accountant, when looking at ways to manage your debt. They can look over any paperwork you have, as well as give you advice on the best way to proceed. They are legally required to advise you with your best interest in mind, while scam companies are definitely held to the same standard!

If you are confident that going through a for-profit agency is the right idea for you, make sure that you do your homework. Look up reviews for the company you’re thinking of hiring to manage your debt. Make sure to listen to the services they’re offering, and listen out for unbelievable sales pitches. Even if you have already been working with a company, if you are feeling uncomfortable, you can leave! Don’t feel pressured to stay with a company just because you’ve agreed to meet with them.

Reach out to Hoskins, Turco, Lloyd & Lloyd for Debt Assistance

Having a lot of debt can feel overwhelming and scary. Our firm has helped thousands of clients in the central Florida area make a fresh start and get back on their feet. Call us today to schedule a complimentary bankruptcy consultation, and we will sit down with you and review all your options to find the one that works best for you and your family. Bankruptcy may not always be the best choice, so reviewing your options with an experienced professional can determine what the alternatives might be.

Come visit us at our offices in Port St. Lucie, Vero Beach, Fort Pierce, or Okeechobee. To schedule your appointment, call 866-930-6435 or visit our contact page.