FTC imposes new rule on Debt Settlement Industry

According to the new FTC Telemarketing Sales Rule debt relief companies who receive inbound calls are also now prevented from receiving up front fees until a debt is settled. Many debt settlement companies charge upwards of 15% and charge this before anything is paid to your creditors. Meanwhile your interest rates are rising, late payments are accumulating, and other fees are being asessed. Essentially there will be no frontloading payments only to have you sued by creditors inevitably unless you can pay quick enough on a settlement and depending on your assets a company might not want to settle. Unfortunately many companies do not truly look into whether debt settlement is the right option and consumers are constantly bombarded by advertisments of promises to settle at 50% of what is owed and saving their credit. Typically by not paying your credit cards for months on end you will be offered a settlement to pay as a lump sum, you end up with late payments and settled for less than amount owed on your credit report for 7 years. While its true that bankruptcy stays on your credit report for 10 years, by the time you settle all your credit cards if you have a lot of debt it will take 2-3 years and then it will be reported for 10 which is virtually the same thing.

Fortunately debt negotiations will still be a viable alternative for a bankruptcy attorney to review since attorneys aren’t making telemarketing calls or receving inbound calls from advertising. Clients that meet with a debt relief agent in person are not subject to the rule but some will still try to charge up front fees that are egregious fees, this at least stops the deceptive phone campaigns that are being waged across the country. I do believe in debt settlement for some people which is not a popular position amongst bankruptcy attorneys as many have seen the perils that it has had on clients who have wasted their money only to end up in the same situation but with much less of a fresh start. I understand that but also see it as a tool for people who have access to quick funds through a new business or have the ability to get a loan from family and who might otherwise pay more over a long Chapter13 plan.

The new rules ensures that companies disclose tax consequences associated with debt settlement, stops them from using bad statitstical data on past successes by not including drop outs and other important considerations, and makes sure they explain the time it will take based on current payments and other important disclosures. These are all things that I have been doing and assessing with any client that considers having me negotiate with their creditors. Debt settlement can be a risky venture to take although it can be very worthwhile if done right and should come with a list of disclosures and verifable statitics that can be enforced through fines and penalties assessed by the FTC. It is a good day for consumers and hopefully this will direct some of the people who really should be considering filing for bankruptcy instead of being lured into a false illusion of debt settlement based on small savings and 3 years plans that often fail. Talk to a qualified riverside bankruptcy attorney to see if debt settlement is a viable option and then learn about bankruptcy.

Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

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