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Beware of Debt Settlement Companies and Debt Relief Agencies

Updated on November 7, 2009

I am a bankruptcy lawyer, and have had many people come to me after dealing unsuccessfully with debt settlement/debt relief companies. Many of them have spent thousands of dollars in a futile attempt to pay their debts, only to be subjected to creditor harassment and seeing no result for all their efforts.

There are some reputable debt settlement agencies, such as Consumer Credit Counseling Service, which has been around for decades. CCCS charges a nominal fee to restructure credit card debt, and they can be very helpful for some people. Since credit counseling is required before a person can file bankruptcy, there are other consumer credit counseling organizations all over the country that have been approved by the Federal Courts to provide such credit counseling. A list of those agencies can be found on the website for the Federal Court in your jurisdiction. But unfortunately, when the economy tanks the way it has now, scam artists come out of the woodwork and begin conning honest people.

The reality is that despite their inflated promises, debt settlement companies can't do anything for you that you can't do for yourself. Call your creditors, request that they lower your interest rate or work out a reduced payment plan for you. This will probably require you to close the account and pay off the balance. You may be able to come to an agreement whereby they will not make any adverse notation on your credit report, but that is unlikely. And any amount of your balance that is written off will be reported as income to the IRS, which means you will have to pay taxes on it. But it may give you the breathing room you need to get back on your feet.

Many debt relief companies tell you to stop paying your credit cards and to send them money to build up a fund so they can then offer the creditors a lump sum payoff. The problem is that the fees charged by the company come out of the first money you give them, and only after the fees are paid does your money begin to build up for settlement offers. In the meantime, your credit card lenders begin calling you, harassing you, and reporting delinquent payments on your credit report. Only after the account has gone to a collection agency do the debt relief companies begin trying to cut a deal.

You can do the same thing, without paying any fees to a debt relief company. No matter which of these tactics you use, your credit rating is going to plummet. And the credit card lenders are under no obligation to work with debt relief companies or with you. Even if some of your lenders do agree to a settlement, that is not particularly helpful if others will not. Meanwhile, your credit is ruined for seven years.

There have been so many consumer complaints recently about debt relief companies that the Federal Trade Commission is proposing rules that will severely restrict those companies' practices. Under the new rules, debt settlement companies will not be able to charge fees until they can confirm that a particular debt has been settled, reduced, renegotiated, or otherwise altered.

If you are unable to pay your credit card debt, are in danger of losing your home or cars, or cannot pay your bills and still afford essentials, you should consult a bankruptcy lawyer. Most will give you a free consultation, and will educate you about your options. I have consulted with many people who had options other than bankruptcy, and simply needed to know what their rights were. However, when bankruptcy is the right option, it can give you a fresh start, protect your assets, and stop your creditors from harassing you.

Many people fear filing for bankruptcy because they are afraid of losing their property, ruining their credit rating forever, or being stigmatized. For the full story, go to the websites for the National Association of Consumer Advocates or the National Association of Consumer Bankruptcy Attorneys. Once you know what your legals rights are, you will be able to make an informed decision about what is best for you and your family's financial future.


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  • kenneth avery profile image

    Kenneth Avery 

    7 years ago from Hamilton, Alabama

    Miss Belgravia, GREAT HUB! Informative. Truthful. Insightful. Needs to be read by people tempted to go to one of these hucksters. I did. Years ago, but was not benefitted at all. Ended up legally going bankrupt thanks to my loss of income, mounting medical bills and the utilities. NO choice. Wish I had known YOU then. You are a good person and a talented writer. May I, with your permission, be a fan and a follower? I would love that. Thank YOU! Highest regards, Kenneth Avery, from a rural town, Hamilton, in northwest Alabama, that looks like Mayberry, the sweet little town we loved on the Andy Griffith Show. Thanks for everything (((ka)))

  • Dolores Monet profile image

    Dolores Monet 

    9 years ago from East Coast, United States

    It's awful how so many crooks have come out to take advantage of people who are in trouble. Sickening really, though hardly new. Predatory finance companies and other such businesses should be stopped but I guess there are too many.

  • Miss Belgravia profile imageAUTHOR


    9 years ago from Fort Worth, Texas

    Thanks for stopping by, callme and oregonwino. When times are tough and people are desperate, all the crooks come out from under the rocks. It's really heartbreaking to hear the victims' stories after they have been taken for everything they had.

  • OregonWino profile image


    9 years ago

    Very nice and informative hub! It is very sad how many people are kicked when they are already down and out by scam artists!

  • profile image


    9 years ago

    Hey there, good article! I don't have any debt issues myself but have heard that company was a good one.

  • Miss Belgravia profile imageAUTHOR


    9 years ago from Fort Worth, Texas

    Thanks for your comment, rmcrayne. I just wish more people would research these companies before they part with their hard-earned money. I'm often left to help my clients pick up the pieces when they have tried so hard to do the right thing, and have been scammed. I'm glad you were there to help your sister avoid becoming a victim, and I hope CCCS was able to help her. They are the only group I recommend.

  • rmcrayne profile image


    9 years ago from San Antonio Texas

    Thank you so much for writing on this topic. When my sister needed help, I asked my investment counselor for reputable agencies, and he gave me a flier for the local CCCS. We had previously had numerous calls to our house about services. I told one that I was the suspicious type, and asked for a web address or something I could research. They had a story about being a service who found clients for the main business, which I went to the website. It was a legal/bankruptcy group who had only recently joined the BBB. I wondered if this was really the target assistance, or just a quick dodge for more inquisitive potential targets. Funny thing no one called back. More people should remember, if it sounds too good to be true, it probably is.

  • Miss Belgravia profile imageAUTHOR


    9 years ago from Fort Worth, Texas

    Thanks very much, Niteriter. I hope knowing the truth will keep at least a few people from falling for these cons. It's really heartbreaking to get calls from people who have tried so hard to do the right thing, only to be robbed of the last of their money. I really appreciate your comments.

  • Niteriter profile image


    9 years ago from Canada

    This is refreshingly sensible advice. You are an honest voice in a con-infested wilderness! I am fortunate to have not needed the service you offer but I have seen the cons' ads! I admire you for upholding honour at a time when a lack of ethics is too often considered smart business.

  • Miss Belgravia profile imageAUTHOR


    9 years ago from Fort Worth, Texas

    I agree completely. Unfortunately, things are so difficult for people right now, even those who have been frugal and have lived within their means are having a hard time. And those who haven't been so wise are finding themselves in dire straits. I have clients where both the husband and wife have been out of work for months, have gone through all of their savings, and now are in danger of losing their homes, vehicles, or other assets. I've never seen it like this, in my 14 years of practicing bankruptcy law. And with that much desperation, there are lots of people out there willing to take adventage of that. Thanks for your comment.

  • needful things profile image

    needful things 

    9 years ago from Poland

    Sometime the circumstances of life leads us to debt. My onle advice is as much as possible... do not lie the lifestyle you may not afford if you do not have a job. :-)


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