If you are deep in debt, the idea of being able to eliminate your debts without filing for bankruptcy is pretty attractive. That's why it's so easy to fall prey to programs that sound too good to be true -- to everyone but the consumer who buys into them.
A case in point: A website I came across recently promises to "legally get rid of 100% of your unsecured debt."
Don't worry, they say, "This is not a "Do It Yourself" program." They will "handle everything for you, every step of the way. No Sending Letters, No Conference Calls -- just RESULTS!"
The company provides an audio recording that explains how they will use contract law to alter your contract with the creditor so that you don't ever have to pay back what you owe. You just assign your debts to them (the firm) and if the creditor protests, they will have to come after the firm for payment, not you.
To get to the bottom of this scheme, I consulted Bob Markoff. Bob is a collection attorney with Markoff & Krasny. He has years of experience, and he is also serving as president of the National Association of Retail Collection Attorneys (NARCA) a group that represents law firms that collect debts. Yes, it's true he collects on the part of creditors and is going to side with them when it comes to being repaid. But he is also an attorney who has seen plenty of scams over the years.
"The overriding premise here is that they can unilaterally amend a pre-existing contract by sending new contract terms to the creditor with a payment referencing the new terms. If the payment is accepted, so are the new terms. The new terms are utterly ridiculousÃ¢â‚¬Â¦as is their premise."
The legal term for changing a contract is "novation." Most, if not all, credit card companies are wise to these tricks and have terms in the original credit card agreements to prevent such "tricks."
Credit card agreements now have terms to the following effect:
1. All payments marked "PaidÃ¢â‚¬Â or Ã¢â‚¬Å“Settled in Full" must be sent to a different address than the usual payment address, if the payment is for a sum differing from the balance due on the last statement. This prevents such payments being sent to the lock box at the bill payment center where they may be processed without review. (This trick is so old that I know of an Illinois attorney who tried to pay his American Express bill with a check for $1.00 marked Ã¢â‚¬Å“Payment in FullÃ¢â‚¬Â. He was disbarred over fifteen years ago!)
2. The agreements also state that any attempt to change terms of the contract must be sent in accordance with specific instructions set forth in the agreement. If the process is not followed, the attempts to change terms are not effective.
Now, to some of the debt elimination programÃ¢â‚¬â„¢s nonsense statements:
1. "Other repayment plans can EASILY last 7 to 10 years..." In reality, few repayment plans last that long. Generally, if they last longer than 3 to 5 years, they fail!
2. "We assume debt...it is now OURS, not YOURS!" Think again: There is no legal basis for this.
3. "We include Student Loans." Better luck next time! They may include such loans, but Federal law and regulation govern those loans, and no one but the government can change their terms.
4. They make "Consideration" payments...Watch out! I have no idea what this means. It is not a legal concept.
5. "The creditors must now send all statements to us and not you." No! This is simply not true.
6. The debt elimination programÃ¢â‚¬â„¢s restatement of contract law: The way they describe the fact that a contract must include an offer, terms, and acceptance is correct, but they then distort it to overlook or ignore the original offer, terms, and acceptance underlying the original agreement the consumer signed!
7. "Suits on the accounts that we take over must be against us and we have never been sued." However, what they donÃ¢â‚¬â„¢t tell you is that the reason they may never have been sued is only because no creditor has ever switched an account into their name!
8. "The law says that collection agencies must provide written documentation of a disputed debt." This is not a correct statement of law under the Fair Debt Collection Practices Act (fdcpa). Under this Act, a collection agency must provide written verification of the debt.
9. "Don't talk to debt collectors because they are there to trick and scare you..." DonÃ¢â‚¬â„¢t listen to this bad advice! Collectors call to work out payment arrangements. If you don't talk with them, you can't work out a repayment schedule.
10. "Banks sell the bad debt to collection agencies five to six months down the road and the agencies must send a letter within 10 days of buying the debt." That is just plain wrong. There is no such requirement.
11. "Expect some negatives on your credit bureau report for 6 to 10 months." Finally a true statement with an exception: Negative listings will last longer than 10 months! In fact, late payments, charged-off accounts and collection listings may be reported for up to seven and a half years under the federal Fair Credit Reporting Act.
This type of nonsense is a fraud upon the public and our economic system. It is an attempt to cheat the system instead of promoting fair dealings between the parties. It creates unreasonable expectations for the consumers, who will end up being sued and garnished.
My best advice to anyone concerned with their financial condition is to seek the advice of an attorney licensed to practice law in their local community. At the very least, the attorney should be able to assist in sorting through the various programs being offered to consumers. Talking with an attorney does not mean you must file for bankruptcy.
By signing up a debt counseling session, your provided details (Name, Email ID and Phone No.) will be forwarded to the company advertising on the DebtCC. However, you have no obligation to use their services.
Some creditors and collection agencies refuse to lower the payoff amount, interest rate, and fees owed by the consumer.
Creditors/collection agencies can make collection calls and file lawsuits against the consumers represented by the debt relief companies.
Debt relief services may have a negative impact on the consumer's creditworthiness and his overall debt amount may increase due to the accumulation of extra fees.
The amount which the consumer saves with the use of debt relief services can be regarded as taxable income.