Bankruptcy, Garnishment, Foreclosure, Virginia Beach, Norfolk, Richmond, Chesterfield, Portsmouth, Chesapeake, Hampton, Williamsburg, Henrico, Chester, Mechanicsville, Gloucester

By John G. Merna, Esq.

 Debt Settlement Scams: Taking Advantage Of Your Good Intentions

The internet is full of debt settlements scams, I mean “offers”.  Offers to reduce your payment, reduce your interest, reduce your principal, get you out of debt in a few years.

The biggest debt settlement pitch that financially-stressed individuals fall prey to goes like this:

Them: “Stop paying them (your bills/creditors) and tell them to call us.”

“We will but you on a $500 or so a month payment.  Auto-deduction from your bank required.”

“When you have accumulated enough money we will start by settling out the bills.”

“After we settle out the first one, you will continue to pay monthly into the pot and when enough is accumulated we will settle out the next one.”

You: “Wow. Sound great. I get a payment plan.  Get the debt settled for a fraction of the total and get it done on my own timeline.  Where do I sign up?”

Who wouldn’t think that was a lifesaver in the sea of overwhelming debt and stress!!!  It is too good to be true. Why would we need bankruptcy if this will work for everyone?

Here is the debt settlement scams:

1)            Read the fine print.  This is a money making machine for the settlement scammer because they get their fees off the top if you settle AND/OR cancel!!

2)            Let’s see. You have $8,000 credit card debt out of your total $25,000 debt, and it’s breathing down your neck hardest.  They may take half of the balance to settle. So $4,000.  I’m paying $500 per month so I need 8 months to accumulate that amount.  But wait a minute — I have to pay the debt settlement company’s fees also — so you better make that a year before I can settle my first debt.  Long, but I can hang in there.  Great, it is done.  Now where do I stand?

3)            Oops.  Wait a minute.  I don’t have any money in the pot now that I have settled the first one.  I also haven’t paid the other $18,000 in debt in at least a year.  What am I going to do about this lawsuit by one of the other creditor that I haven’t settled yet?

The answer is — you can’t do anything.  You have no money in the pot, and of course you have to remember to pay the debt settlement fees off the top of what you accumulate.  Oh, I don’t want to forget that in Virginia they will be able to sue and get to the point of garnishment in less than 60 days.

Garnishment!! Yikes. Garnish how much?”

Twenty-five percent of your wages can be garnished in Virginia and all of your bank savings and checking can be garnished.

“Yikes.  What can I do?”

Well, given that your credit is already in the toilet, you owe more than you can pay, can’t pay in a reasonable time, and you are about to be evicted because you can’t pay your rent or mortgage due to the garnishment  . . . (taking a breath) . . . then I think a bankruptcy is the better option.

“I wish I had done that a year ago.  I could have used the money I settled that one account with to pay you and still have a large sum in my pocket.”

Okay. So you see it doesn’t work.  So what is the scam you ask?  The scam is the debt settlement company knows it is not going to work from the get go.  Come on.  It is easy math.  You look at how much you owe.  You look at how much you are paying per month to determine how long you need to accumulate funds and you estimate what the settlement percentage will be.  In any scenario I have encountered the individual is unable to settle out the debt in less than three to four years.

“How long will the creditors wait before they will take legal action?” you ask.

It varies but generally a lawsuit is implemented within or around a year after payments stop.

So you see.  It can’t work.  To be fair there are situations where it could work — such as the balances are low and the monthly payment high.

Could it work?  Sure.  If you deposited a higher monthly amount in order to accumulate funds quicker.  How much higher? You are probably looking at double or more depending on the amount of debt.

But our debt settlement scammer knows if they jack the payment up too high 1) you can’t afford it and 2) you will say “No.”

“Why set an artificially low payment if they know it will fail?”

Because the scammer gets paid whether you stay in or get out.  By the time you decide to get out you have accumulated a tidy sum for the scammer to take his fees.

So you see.  While they are offering to hold off the tide of debt collectors by settling your debt, you will drown in the tsunami of creditors that come flooding at you after a year of not paying.

Make sure they throw in a life vest with the program if you are going to attempt it.