Watch Out for "Avoid Bankruptcy" Scams
Bankruptcy should be a last resort. Most people want to look at all the alternatives before they file bankruptcy. That makes some people easy victims of “avoid bankruptcy” scams.
I’ve talked to three people in the last ten days who sent ten thousand dollars or more to “debt negotiators.” They stopped when the sheriff brought court papers. At that point, each one realized they had been scammed. And they realized it was time to talk to a bankruptcy attorney.
Yesterday, I met Linda–not her real name. This is her story.
When she signed up with this debt negotiator, she had $98,000 in credit card debts. They were all current. She had stayed current by living on the credit cards all month, and then her entire paycheck went to make the minimum payments. She knew this couldn’t go on.
Ten months later, she got court papers for her$20,000 Bank of American credit card. She had sent $11,119 over the ten months to the debt negotiator, and they had settled two credit cards for her. One for $629 and one for $2190. So, she had paid $8300 in legal fees, to get rid of $2819 in debts. Not a good deal.
There’s a lot of income in Linda’s family, so she may end up in a Chapter 13 bankruptcy.
She is prepared for the worst case, which is this. She may have to pay the bankruptcy court $300 per month for five years and have to pay me $3323. That’s $21,323 to get rid of debts that now (with late fees) are over $110,000. That’s a good deal.
Best case would be a chapter 7 bankruptcy. Again about $3400 in legal fees, and the whole $110,000 would be wiped out at once. That’s really a bargain. If she had seen a bankruptcy attorney when she first contacted the scammers instead, she would have been an easy chapter 7. Why is that? What messes up her income eligibility is the new part time job her husband took on the weekends to try to make the payments. Without that job, eligibility would have been fine.
I’d like to go after these debt negotiators for false advertising and get that money back. (At this point it would go to the bankruptcy court to pay a little to the credit cards–but that was what Linda was trying to do with it.) When I checked, I saw how careful they are to avoid any claim of false advertising. Look at this:
“Some companies “promise” results and advertise exceptional settlements as commonplace. Legal Helpers Debt Resolution is different; we make no promises and will not guarantee you we can negotiate your debts to a certain percentage. We are experienced attorneys and trained legal advocates and adhere to the following minimum performance standard: If we do not reduce your debt by at least 35% of what you owe, we will refund your fees for settling that particular debt and still resolve the debt on your behalf.”
If you read that carefully–they are bragging that they “make no promises” and “will not guarantee.” Well, they are telling the truth about that. So its hard to make a false advertising case against someone who says they promise nothing.
I don’t know what to do. These outfits have loads of money to spend on advertising, because they charge so much and do so little. The best I can do is warn you. If it seems too good to be true, it isn’t true.
My recommendation, if you want to try to avoid bankruptcy and work out lower payments, is Money Management International. They know what the credit card companies will agree to, because basically they were set up by the credit card companies. And they will try to give you an accurate estimate of what they can get your payment, including their fee, down to.
There are a number of other companies that are honest and do the same thing. The National Foundation for Credit Counselling certifies counselors who a trained and tested on being able to help people, rather than scam them.
People who say they can do better than an NFCC member, in nearly every case, are lying. What if you talk to Money Management or another reputable credit counselor and they cannot give you the help you need? Then it’s time to talk to a bankruptcy attorney.
PS. Just was sent this link to a Government Accounting Office study of these “avoid bankruptcy” outfits. Thanks to Robert Brandt, a bankruptcy attorney in Alexandria VA, who saw my comments and passed on the study.
PS May 15, 2015
Thomas Macey and Jeffrey Aleman, the two lawyers behind Legal Helpers Debt Resolution, were suspended from the practice of law, by the Illinois Supreme Court, yesterday. US Justice Department lawyers, who are also chasing Macey and Aleman, said, we’re not done with them, yet.
PPS March 18, 2016
The Consumer Financial Protection Bureau won $40 million in fines, against Morgan Drexen, one of the biggest debt settlement operations. They were also ordered to refund $133 million to the consumers they scammed. You can read about that, here. It’s not clear how much they will be able to collect. This shows the CFPB trying to shut down the worst of these scammers.
Also, this week, we collected $1500 from Global Client Solutions. Global handles the payments for nearly all of the hundreds of debt settlement operations. They are one of six defendants we are suing on behalf of one of our clients, named Cary. So far we haven’t heard form the other five. They are due in court in mid April. Cary got scammed out of $1133. We’ve gotten $750 back so far (we got the other $750 for doing the work.) Virginia law gives her triple damages, so we’re trying to get to $3400.
PPS Federal Trade Commission Shuts Down Some More Scams
The Federal Trade Commission shut down another set of these debt settlement scammers today. Here are the details.