Everyday Law

December 18, 2008

Debt negotiation companies — how can it hurt?

Filed under: Uncategorized — Amy Kleinpeter @ 11:11 pm

You hear the advertisements on radio — Special programs!  Pay off your debt at a dramatically reduced rate!  Avoid life in prison castration BANKRUPTCY!

So it sounds too good to be true…but you call and it sounds very convincing.  What’s the harm in trying it out?

One word — lawsuits.  Any company that tells you otherwise is not helping you.

First, here is how debt negotiation typically works — if a company follows this procedure and calls it something else, they are still debt negotiators.  Let’s call them DN.

You sign contract with DN.  Contract is mostly admissions that DN may not be able to help you and you cannot sue them but must arbitrate any disagreement.

You change your credit card and personal loan bills’ addresses to the DN.  You quit making any payments on these loans.  You send money each month to DN.   Some of that goes to DN as a fee.  Some goes into an account to help pay back your debt.

Credit card lender, personal loan lender, or a collection company will send letter to DN.  Citibank will do something like this “Hey, Joe Schmoe just changed addresses to a DN.  Make him an offer NOW.”   Citi sends offer letter but because DN has taken most all of your first two payments as fees, you have nothing to pay.

Citi files a lawsuit against you which will be hard to defend as they are the original creditor and you just quit paying your bills a few months before.   In some states like California, if Citibank wins their lawsuit, your wages will get garnished once a judgment is entered against you.

I used Citi as an example, but this can happen with any lender when you join a debt negotiation company.

But what about those reduced rates — those special relationships between lenders and the DN?  Well, if you quit paying your credit cards and personal loans tomorrow, they would start sending you offers to negotiate with a lump sum payout in a few months.  That just is what the lender or debt collector ALWAYS does.  The DN does not “negotiate” anything.

So, avoid the debt negotiators.  Trust yourself — if it sounds too good to be true and involves you giving up money in the beginning for promised rewards in the future — it’s probably a scam.  Debt negotiation companies cannot live up to their radio advertisements.  I am not saying no one has never been helped by a DN – -just many more have just lost money on fees and ended up still in debt but wtih judgments against them.

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1 Comment »

  1. The courts do not enforce judgments or collect the money for the judgment holder. Wage garnishment is not automatic. Once there is a judgment the creditor would need to get a writ of execution. Then they can garnish your wages. For the average person who isn’t familiar with the law, the may be challenging. But for the big bad corporate world…they can do it in their sleep.

    Comment by Michelle — April 14, 2009 @ 8:51 pm | Reply


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