Debt settlement is a high-risk financial product that requires consumers simultaneously to pay significant fees, save hundreds or thousands of dollars for potential settlements, and meet other obligations such as mortgage payments. Failure leads to grave consequences - increased debt, impaired credit ratings, and lawsuits that result in judgments and wage garnishments.
Debt relief providers commonly fail to produce the results they promise, causing substantial consumer injury. Vedra Law LLC represents consumers who have been harmed by debt management companies.
Many debt settlement companies charge significant advance fees. Some require consumers to pay 40% or more of the total fee within the first three or four months of enrollment and the remainder over the ensuing 12 months or fewer. These fees must be paid whether or not the provider has attempted or achieved any settlements. An increasing number of companies utilize a so-called “pay as you go” model, spreading the fees over the first fifteen months or more of the program, yet still requiring consumers to pay hundreds of dollars in fees before they receive a single settlement. Even when debt settlement companies spread the fee over the anticipated duration of the program (usually three years), consumers typically are required to pay a substantial percentage of the fee before any portion of their funds is paid to creditors.
If an individual assents to a plan that contemplates that creditors or debt collectors will settle debts for less than the principal amount of the debt, the debt management company cannot charge any fee until the company has settled the terms of at least one debt pursuant to a settlement agreement or other valid contractual agreement executed by the consumer and the consumer has made at least one payment towards the settlement.
Additionally, the Colorado Debt Management Services Act places strict limits on the types and amounts of fees.
Many debt settlement companies tell consumers that they can, and should, stop paying their creditors, while not disclosing that failing to make payments to creditors may actually increase the amounts consumers owe (because of accumulating fees and interest) and will adversely affect their creditworthiness. Under the Colorado Debt Management Services Act, "A provider may not, directly or indirectly . . . advise, encourage, or suggest to the individual not to make a payment to creditors under the plan." Colo. Rev. Stat. § 5-19-228(a)(16).
Nevertheless, debt settlement companies advise consumers not to pay their creditors. The debt settlement company believes that the only way to get a reduction in the amount of debt is to let the debt go into default. Once the debt is in default, the story goes, the creditor will be much more willing to grant concessions and reduce the amount due.
Of course, letting a debt go into default can have an immediate, negative impact on the consumer's credit. Once a credit card payment is thirty days past due, most major credit card creditors report the delinquent payment to the major credit bureaus. Past due payments are a one-way ticket to decreasing a credit score.
Many debt management companies require the consumer to participate in the program for a significant amount of time before the company is able to resolve any debts. In a large percentage of cases, consumers are unable to continue making payments while their debts remain undiminished and drop out of the program, usually forfeiting all the payments they made towards the provider's fees. By dropping out of the program, the consumer does not achieve the intended result, and instead, has potentially ruined her own credit and paid significant fees for this dubious privilege.
Colorado law requires that a debt management company state the amount of time necessary to achieve the first settlement. Sadly, debt management companies omit this required term from their contracts with consumers.
These are just some of the issues with debt settlement companies. If you have a problem with a debt settlement company, fill out the information below to contact Vedra Law LLC concerning your debt management company.