I spend a lot time on the road and have heard several ads on the radio. They all say something like: Don’t let the credit card companies trick you into believing you owe them. Then there is the inevitable sales pitch for a debt assistance company claiming they want to help you and their services are better than bankruptcy. They are also sending out ads by mail. I saw one of their mail ads the other day, it stated the individual’s debt, and a proposed payment for their services in helping resolve those debts. What they didn’t know is most of the total debts they stated were for active car payments, not credit cards, medical bills, unsecured bank loans, etc.
The FTC has actively been suing and/or banning companies from engaging in debt relief. This activity by the FTC and the radio/mail ads described above, makes me think a lot of the places are designed to scam people who are searching for debt relief. In meeting with my potential clients, I’ve learned a few things about these debt companies:
(1) Typically none of my clients were told that some creditors have hard policies against working with debt relief companies. Here is a statement I copied and pasted from a 2017 lawsuit the FTC filed against one of these debt relief companies: “Chase, American Express, Discover, Macy’s, Synchrony Bank, or other creditors ………… have policies against working with debt-settlement companies”. So if any company tells you they will help you resolve all your debts, they are probably misleading you. To find out more about the FTCs efforts, you can go to www.ftc.gov.
(2) Another item I’ve noticed recently, most of these debt relief companies seem to quote really high monthly payments. A lot of my recent potential clients that used these programs routinely tell me they were paying the company $500.00, more or less, each month. After I discuss bankruptcy options with those potential clients they usually tell me they wish they would have met with me first because my bankruptcy options were less costly than the debt relief company programs.
(3) After signing up as a debt relief company client, most people are told to stop making their payments to those creditors. What most individuals aren’t told is those missed payments tank their credit score. A sales pitch by these companies is there debt relief programs are better than filing bankruptcy. I seriously doubt it. Most of my clients that have filed bankruptcy typically see their credit score increase through the bankruptcy process.
(4) When a debt is forgiven through a debt relief program it can create a tax liability. If a creditor forgives your debt, then they are supposed to send you a 1099 and you then have to include the amount forgiven as income for your tax return filing. If enough debt is forgiven, they can add up to a significant tax liability for you. On the other hand, debts discharged through bankruptcy are not tax liabilities for you.
If you are struggling with debts and you see a law firm or company advertise debt relief programs other than filing bankruptcy, stop and do research. If you do contact them, get information only, then go to an experienced bankruptcy attorney to find out if there are better options—usually there are. Mooney Law has a full bankruptcy practice for personal and business bankruptcy. Better yet, our consultations for bankruptcy are absolutely FREE. We do not provide debt relief services. We provide transparent representation to provide you a fresh start or a reset. Call Mooney Law today at 717-200-HELP to schedule a free consultation at any one of our 14 offices throughout Central Pennsylvania.