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Watch Out : The Dangers of Debt Negotiators

My job is to fight banks, mortgage companies, credit card companies and debt buyers. While we usually get good results for our clients, every person I meet comes to our office because they have some kind of problem that they need fixed. Many of my clients have been victims of so called “debt negotiation” companies so this seems like a good topic to write a warning about.

There are companies which advertise that they will help reduce your debts by negotiating with your creditors or consolidating all of your debts into one single debt. While there are some legitimate companies which offer these services, many, MANY of these companies are skirting the edge of the law and ripping off their clients. Nearly all “debt negotiators” are scams.

The representatives of these companies often promise results or guarantee success or promise refunds if they don’t succeed. These promises are hollow and the contracts that people sign with these companies almost always make clear there will be no refunds. Consumers are generally not given an opportunity to read the contract before signing it or lied to about the contents and encouraged to sign without reading them. Even legitimate debt negotiation companies rarely offer a “money back” guarantee and no company can guarantee success.

Here is the way the most typical “debt negotiation” scam works. Suppose you owe $5,000.00 to various creditors and you have $1,000.00 in your bank account now. You go to a “debt negotiator” and they offer to help negotiate with your creditors. You give your $1,000.00 to the “debt negotiator”. If they are true criminals, they take your money and you will never hear from them again though that is a minority of cases. What happens more frequently is that they charge an “administrative” fee representing a large portion of the $1,000.00 given, say $400.00. In this example, that leaves them with $600.00 to pay your creditors. The debt negotiators then pay each of your creditors a little money until the $600.00 is gone, then go back to you and say “Well, we ran out of money, do you have any more to pay them?”

Debt negotiators have no leverage. The banks and credit card companies have NO reason to give them any better of a deal than they would have offered to you. Debt negotiators do not have any special knowledge and skill. If they are successful at all it is because a creditor was already willing to set up a payment plan or take less than was owed for a debt and if the consumer had called them directly, they very possibly could have gotten the exact same deal. Many debt negotiators are essentially call centers and have very low standards in who they employ.

If you are being pursued by creditors, I would encourage you to try to contact your creditors yourself to work out a payment plan. Few if any “debt negotiators” can get you a better deal than what you could have negotiated on your own. If you have been sued, contact our office or another law firm. We have had a great deal of success helping people fight their creditors and when we negotiate on our clients behalf, we negotiate from a position of strength.

This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorney in connection with any legal issues related to the matters discussed in this article as the applicability of state, local and federal laws may vary.