Another Example Why Debt Settlement Companies Are Bad

It happened in my office again yesterday. Client X was working with a debt settlement company (always a big mistake). He had 3 accounts with them, 1 with Discover Bank and 2 with FIA Card Services, totaling $40,000 in debt. The settlement company advised him to put the money in an escrow and when the funds accumulated, the company could try to settle the accounts for him.

Unfortunately, the first $6000 you paid (at the rate of $600 per month) was the debt settlement company’s fees, which they take first. You can do the calculations here. Client X paid $600 a month for 10 months and the settlement company had not yet contacted his creditors. Good deal, right? Suffice it to say that the creditors got tired of waiting for their money, so they sued Client X, who then notified the debt settlement company. Surprisingly, the debt settlement company has a contracted law firm to provide legal advice. The law firm is based in Indiana. Client X is based in Pennsylvania. (Note: Lawyers can only advise on the laws of the state in which they practice; laws vary widely from state to state.) The Indiana law firm prepared a generic response to the lawsuit and told prospect X to file it and appear alone at the hearing. Needless to say, Client X was crushed at the hearing, having lost every penny claimed in the lawsuit.

Client X contacted my office. I was able to review the lawsuit and review the response that was “prepared” by the Indiana law firm. It contained none of the proper defenses to a PA credit card lawsuit and essentially admitted that Client X owed all the money. So the debt settlement company not only took him for $6000, but also gave him horrible legal advice (via the Indiana law firm) that caused him to lose a lawsuit that he would have won if he had just hired a actual consumer attorney.

This is just another example of why debt settlement companies are horrible news. In my experience, I have never come across a debt settlement company that is not a total scam or at best totally incompetent and not worth the money you pay. The unfortunate part is that in my small suburban law office, I hear stories like this at least 4 times a week. Sometimes a good consumer lawyer can repair the damage caused by debt settlement companies. Other times, simply too much damage has been done.

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