The Perils of Debt Management Companies
A cottage industry of debt management companies has arisen, promising to help people reduce these debts. Unfortunately, many of these advertisements come from companies making promises they cannot deliver.
May 30, 2009 /24-7PressRelease/ -- The Perils of Debt Management Companies
Article provided by Grand Law Firm, please visit us at http://www.grandlawfirm.com/
In economically-challenging times, more and more people are finding themselves overburdened with unmanageable debts. As a result, a cottage industry of debt management companies has arisen, promising to help people reduce these debts.
Throughout Louisiana, advertisements flood the radio and television stations. Commanding voices reassure potential customers that they don't need to file bankruptcy and that better options are available. Unfortunately, many of these advertisements come from companies making promises they cannot deliver.
When considering alternatives to bankruptcy, it is important to understand the potential problems with debt management companies. Far too often, these companies prey upon vulnerable people who are trying to regain control over their finances.
Unfulfilled Promises of Debt Consolidation Companies
Most people who find themselves with overwhelming financial obligations want to resolve their debts. Often times they hope to avoid bankruptcy, fearing it will leave a permanent mark on their credit history. Debt management companies take advantage of these situations, recognizing that people will seek out opportunities that sound promising.
These companies promise to cut debts in half with a seemingly reasonable strategy. When debts become overwhelming, it may be impossible to pay back all creditors at once. Instead of attempting to eliminate debts all at once, these companies seek to put creditors in a position where they feel like they won't get paid at all, so that these creditors will be open to negotiations.
To do this, the companies encourage their customers to stop paying their outstanding debts entirely. Instead, customers pay the debt management company, with promises that the funds will go into an escrow account. Later in the settlement process, these funds will allegedly be used to arrange lump-sum settlements with creditors. When angry creditor calls continue, the debt management companies promise that the calls should be ignored and that the creditors will be approached once the escrow account has accumulated funds for settlement.
Trusting in the debt management company, people make routine payments to the company and ignore other creditors. For a period of time, they are able to relax; with a plan in place, they feel like they are gaining ground and getting back on solid financial footing. Regrettably, this relief is short-lived.
After months of being ignored, creditors will take action and file lawsuits. Only at this point are those who have trusted in debt management companies alerted to their precarious position. Debt management companies offer no legal protections and often expressly disclaim any liability. After a lawsuit is filed, many customers discover that the money they thought they were setting aside in escrow to pay creditors was in fact simply paying the debt management company's fees. After spending thousands of dollars with the debt management company, the customers are worse off than they were when they started.
How Can This Happen?
The corrupt nature of this process leaves many people wondering how companies with such terrible and predatory practices can thrive. The problem is, they don't have to thrive. These fly-by-night operations can spring up overnight, collect hundreds of thousands of dollars in fees from financially-stressed customers and close down as soon as customers realize that they have been cheated.
After selling their so-called services on the premise of helping customers avoid bankruptcy, many of the companies file bankruptcy. Bankruptcy provides legal protection from creditors -- including those who could potentially file civil lawsuits, such as former customers. As a result, customers have no recourse. They are left with nothing but thousands of dollars wasted and increasingly angry creditors.
Not all debt management companies are corrupt; some companies have good intentions and truly want to help customers resolve their outstanding debts. Unfortunately, it is nearly impossible to separate the legitimate companies from those that are seeking to take advantage of people in difficult situations.
Bankruptcy Offers a Responsible, Effective Means of Eliminating Debts
People turn to debt management companies hoping to find responsible ways to reduce their debts. For many people though, bankruptcy is truly the best and most responsible solution.
The bankruptcy process is highly regulated and includes extensive legal protections for individuals. Filing for bankruptcy will stop creditor harassment, home foreclosure and wage garnishment. At the same time, bankruptcy provides a structured environment to address outstanding debts, whether this is through debt forgiveness or a repayment plan.
Furthermore, bankruptcy lawyers are regulated by the state bar. If attorneys behave unethically, they are subject to professional discipline or even disbarment. Attorneys cannot simply close down their offices and change their names; the record of any ethical violation remains.
Over the years, bankruptcy has been demonized by creditors seeking to squeeze every penny out of people who have already given more than they have. This is truly unfair. Bankruptcy guarantees a fresh start to those who need it most, recognizing that no one should spend a lifetime trying to repay impossible debts. In many cases, bankruptcy offers the best opportunity to build a strong financial future.
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