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Complaints against debt-relief firms continue to mount


According to an article in The Wall Street Journal, a man from Texas registered with a debt relief firm to seek help in climbing out from under $15,000 in credit card debt. After paying hundreds in upfront fees and a steady stream of monthly payments close to $250, he eventually found himself $20,000 in debt. Clearly something wasn't working.

After more threats from creditors and the potential for wage garnishments, he filed bankruptcy, telling the paper, "I wish I had done that to begin with ... I'd have been much better off."

Unfortunately, his story is not uncommon.

Debt relief "companies" are becoming as common as corner coffee shops as the country's personal debt continues to wear away at our collective economic foundation. Problems arise when people, so distraught over not knowing where to turn, respond to the first pitch that sounds sincere. Problem is, they all sound sincere.

The WSJ article cited a financial resources Web site that tracks complaints about debt-settlement companies as reporting that the rate at which consumers are filing complaints against debt-settlement companies has already doubled since 2007. The problems are becoming so commonplace that the Federal Trade Commission is now involved, having recently held an industry workshop to examine how these companies are doing business.

Credit card companies (not exactly the first place people turn for help with money, either) are reaching their wits end with debt-settlement firms. Some, like American Express, say they will not cooperate with representatives from debt-settlement firms.

Even non-profit firms, that typically appear to more focused on help people, have also become subject to scrutiny. The IRS is finding that an increasing number of non-profit debt relief organizations have direct ties to for-profit entities.

One of the primary areas of concern about the operating practices of so many debt-settlement firms is that any money you could pay ceases to go to your creditors. Instead, you deposit it directly into a special account they arrange. Thus, you are trusting the firm to pay your bills. In the end, you are really just putting someone else in control of your money. And, you rarely learn what creditors are being paid what percentages of the total owed so there is no way to measure if there is any structure to the debt repayment. How can you measure its effectiveness?

State laws are not really helping, according to the WSJ piece. While the rules vary per border, more states are allowing for-profit credit counseling firms to conduct business. An industry trade group, the Association of Settlement Companies, has seen its membership double in a year.

If you are facing some debt trouble, the odds are one of these companies has you in their sights. But if you are reading this, then you are already starting to consider your best option: bankruptcy. There are certainly some very helpful and legitimate debt-settlement companies out there but it's too hard today to determine which one among the hundreds can do you the most good.

With the assistance of a bankruptcy attorney, you can find your way out of debt the right way. No mystery accounts in which to put monthly payments and no questionable business practices, just an honest approach to using the law to properly face financial setbacks. Don't be the guy in Florida, make the right choice from the beginning. Call a bankruptcy attorney today.

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