A. Debt “Settlement/Negotiation, or Elimination” Services
Numerous companies offer services such as debt settlement/negotiation or debt elimination.
Consumers should be wary of any company that promises something that seems to
be too good to be true, and should be cautious in agreeing to any service
that requires fees to be paid up front. Some companies offering
such services can actually worsen your financial situation.
Debt settlement/negotiation companies promise they will negotiate with consumers' creditors
to reduce the amount owed
in most cases for an upfront fee.
As a general rule, debt settlement/negotiation should be considered only as a “last
resort” before filing bankruptcy.
Many consumers complain that debt settlement/negotiation companies take their money
but don't deliver promised results.
Consumers may be liable for late fees and penalties that accrue while payments are not being made
during the debt settlement/negotiation process, and may be sued with respect to any debts owed.
Also, failure to pay debts during debt settlement/negotiation will likely have an adverse
effect on the consumer’s credit report.
Companies that advertise debt elimination
rely on many different schemes that all hinge on the incorrect notion
that credit lines are illegal. Debt elimination companies typically
provide, for an upfront fee, a document for the lender that supposedly absolves the
consumer of the debt. The document generally has no validity whatsoever.
Consumers paying for such “services” have found they've wasted
money that would have been better spent on actually paying back their
BBB urges caution with any company that makes any of these statements:
- We can remove your debt
- Do not communicate with your creditors
- Pay us and we’ll pay your bills
- Pay us a percentage of the bills we eliminate
- We can eliminate negative marks on your credit report
- Use our system and you’ll avoid bankruptcy
B. Other Loan and Balance Payment Scenarios
Collection agencies are separate
companies that are used by creditors to collect a delinquent debt.
The agency may be collecting the debt on behalf of a creditor, or they may
have purchased the debt and are now attempting to collect the debt directly.
Collection agencies will contact you frequently until you either pay
the debt, or make payment arrangements. Having an account in collections
may appear on your credit report and may negatively impact your credit rating.
If you have an account in collections, communicate with the collection agency.
Putting off debt collectors will not make the problem go away. When you
receive a collection call, see if they are able to work with you on a payment plan.
Consumers can stop communications from debt collection agencies if the consumer notifies the agency in
writing to stop. Federal law requires that debt collection agencies honor such written requests.
Fair Debt Collection Practices Act
Collection agencies must abide by the FDCPA, which prohibits debt collectors from harassing you, calling you at unreasonable times, using abusive language, using false statements, adding unauthorized charges to your account, and other practices.
Depending on your state, different rules may apply for your creditor’s collection departments. You may wish to contact a lawyer if you feel the terms of the FDCPA have been violated.
Often referred to as “quick cash” or “check cash” loans, payday
loans are easy to obtain because no credit check is required.
Caution: They carry steep interest rates, and consumers
may find they are trapped in a cycle of debt if they cannot pay back
the loan by their next payday. Many states have banned
payday loans or limited the interest that can be charged, and federal
law limits the interest that can be charged by payday lenders to military
service members and their dependents.
An FTC alert on payday loans can be found at
Car Title Loans.
You offer your car as security when you apply for a car title loan.
You must provide your car title and a set of car keys to the lender,
who holds them until the loan is repaid. Caution: Like payday loans, car title loans carry a high interest rate, can trap
you in a cycle of debt, and you risk losing your automobile if you fail
Pawnbrokers take a consumer's possession (a piece of jewelry, for example) as collateral for
a loan that usually carries a high interest rate. Caution: If you do not repay the
loan with interest by a certain date, the pawnbroker can sell
Bankruptcy is a legal procedure that permits an individual (or business) to obtain relief from most or all
of their unsecured debts. It enables people to seek a solution
to their financial problems through the federal court. Bankruptcy
is typically viewed as a “last resort” when other options to solve
financial problems have failed, and there is impending financial
such as losing a home to foreclosure, losing an automobile
to repossession, or wage garnishment.
- Chapter 7 (liquidation).Allows you to eliminate most, if not all, of your unsecured debt.
This may include medical bills, credit card debt, unsecured loans, utility
payments, etc. Any property of value may be sold or turned into
money to pay your creditors. You may be able to keep some personal
items and possibly your house, depending on the law of the state where
you live. Chapter 7 is typically filed by people who
have few assets, little income, and a heavy burden of debt.
- Chapter 13 (debt adjustment).
Reorganizes your debt into an affordable payment plan. A trustee
is appointed and will collect the payments from you, pay your creditors
and make sure you abide by the terms of your repayment plan. Your
bankruptcy is not complete until you pay off all your creditors according
to the terms of the plan. You are usually able to keep your property,
but you must earn wages or have some other source of regular income
and agree to pay part of your income to your creditors. This plan
allows you to catch up on past due auto or home loan payments and temporarily
halts foreclosures and collection actions. It can also help you
pay off past due taxes, child support and loans.
Steps to take when considering bankruptcy
- Review the potential benefits.
Bankruptcy can provide legal protection from creditors and take care
of all or much of your debt.
- Know the consequences.
There are no guarantees that bankruptcy will cure all of your financial
- There are certain debts that cannot be wiped out by bankruptcy. A bankruptcy
filing may also have a significant negative impact on your credit rating,
which could have implications for housing, employment, and obtaining
- Seek assistance from a professional. Consult an experienced bankruptcy attorney
to review your options.