How To Avoid Misleading And Deceptive Debt Relief Practices
Not all debt relief companies engage in dishonest practices. Still, you need to be extra careful before you choose one by ensuring you have checked them out with your state. Make sure to also check with the Better Business Bureau and the Department of Justice. Some of these government agencies have lists of debt relief companies that you should avoid.
This article covers misleading and deceptive practices that target people with student loan debt and debt relief companies that refer debtors to bankruptcy document processing companies for a fee. All too often, debtors are pushed into bankruptcy without exploring other options.
Student Loan Debt Relief Scams
Student loan debt relief company practices that are deceptive and misleading
- Debt relief scammers warn borrowers that certain government-sponsored debt relief programs will be offering forgiveness for prior student debt – but it will be available for a very limited time, so you will need to move quickly if you want to qualify. This type of ploy was rampant during the previous covid forgiveness programs.
- A new student loan law passed by Congress under the Biden Administration will soon be signed into law. It offers partial or complete discharge of certain student loans and that the company, for a fee, and your personal information, will investigate if you qualify.
- Once a company has your personal information, such as your current address, date of birth, social security number, and banking information, they can open credit card accounts and even access your existing bank accounts.
- The Scammer sends out bulk emails stating in large type that the borrower’s student loan has been selected for consolidation or forgiveness depending on the outstanding loan amount and ability to repay. The email ends by urging the borrower to reply and include their current address and phone number to verify their identity and commence the loan forgiveness or consolidation process.
Fees Before Commencement of Work
You should know that it is unlawful for any Debt Relief Company to collect any fees before commencing work on your behalf. Scammers usually require an advance sum of money as a processing and management fee for issuing and managing your case and for negotiating the best possible deal with your lender. Be sure to protect your financial identity from identity theft.]
If the Scammer requests a copy of a check, bank statement, or imprint of your credit card and promises to hold them until they complete their work with you and your loan debts are discharged, don’t believe them.
First, no organization, even if entirely legitimate, can guarantee you will receive a “positive outcome,” say nothing of a complete discharge of your student debts. It is illegal for Student Loan Debt Relief Companies to negotiate with your federal student loan officer for a “special deal” under the federal student loan programs.
Signing A Power Of Attorney (POA)
If they ask you to sign a Power of Attorney, do not sign it without first consulting with a lawyer. A Power of Attorney, either Durable or for a Specific Purpose, gives them legal authority and permission to act on your behalf – especially if they have obtained your identity and financial information. With an executed POA and your identity and financial information, they can do almost anything with your financial accounts.
Other Warnings Signs
Misspelling or grammar errors in their letters and promotional material
Scammers have never been known for their intellectual prowess, including their ability to write coherent sentences without a misspelling or grammar error. This is usually a sign that you’re dealing with fraud.
Isolating you from your creditors
Other signs that suggest you are dealing with a Debt Relief Scam include requiring you to stop communicating with your creditors.
Cease and desist letters
Promising they can file a “Cease and Desist” letter that will automatically stop all debt collection contact with you, including stopping lawsuits from being filed against you.
Deceptive overpromising
Debt Relief Scamsters are famous for guaranteeing that one’s debts can be negotiated down for pennies on the dollar.
Offering Debt Relief Through Bankruptcy
Being in debt and dealing with collection calls can make you feel like you’ve entered a different world. You can feel stress, anxiety, and even depression. You become vulnerable, making you the perfect victim for scammers to approach. The first thing you need to know is that you are not alone. These are very stressful times.
Whether your debt results from an illness, being laid off, or rising food and fuel prices, the cost of being a consumer in 2023 can make you feel desperate and hopeless. In your effort to remain solvent, you might be tempted to respond to debt relief companies promising to get your debt under control or eliminate it entirely by filing for bankruptcy.
While some debt relief companies promise debt relief through debt management and consolidation, what they are really selling is bankruptcy.
While bankruptcy may appear to be your best option, it’s generally the option of last resort, primarily because of the long-term negative impact on your creditworthiness.
If you file under Chapter 7, which most consumers do, your bankruptcy discharge will remain on your credit record for ten years.
Avoid Misleading and Deceptive Advertising Claims
Consumers must be realistic and able to read between the lines when faced with promises of fast and easy solutions to their debt trouble.
Beware of ads and claims that over-promise
- Stop collection company harassment and threats now!
- Save your home – Stop foreclosure now!
- Wipe out all your debts through consolidation!
- Stop lawsuits, garnishments, and repossessions!
While such promises may sound promising, if you read between the lines, you’ll discover what they are really offering you is bankruptcy. Even more deceptive, some debt relief companies make their money through referral channels with legal document providers and even unscrupulous bankruptcy lawyers.
Consider alternatives Before Filing For Bankruptcy
If you’re having trouble paying your bills, first consider doing the following before being rushed into filing for bankruptcy:
Meet with your creditors
Take the time to meet with your creditors. Often they are willing to work with you to modify your payment plan. Creditors know they will likely receive nothing if you file for bankruptcy.
Approved credit counseling services
Contact an approved credit counseling service. The Department of Justice keeps an approved list of credit counseling organizations you can contact. These credit counselors specialize in helping you develop affordable debt repayment plans that are often agreeable to your creditors. Some nonprofit credit counseling organizations charge little or nothing for their services.
Home equity option
If you own a home and have sufficient equity to consolidate your debt through a qualified mortgage broker, you may be able to save your credit and reduce your debt into a single affordable payment.
Drawing Equity From Your Home
Be forewarned; while the money from your home equity may allow you to consolidate, the risk you are taking is that you are using your home as collateral for the equity loan.
Consult With An Experienced And Reputable Bankruptcy Attorney
If none of the above non-bankruptcy options are viable, consider consulting directly with an experienced and reputable bankruptcy lawyer. One recommended by friends and others you trust. An experienced and honest bankruptcy lawyer will provide you with a full explanation of your options and advise you accordingly.
Bankruptcy filing costs and attorney fees
You should be aware that if you file for bankruptcy, you will file your case in federal court. Filing fees can be several hundred dollars. Attorney fees are additional and can vary depending on experience and reputation.
Both types of consumer bankruptcy, upon filing, trigger the bankruptcy court’s automatic stay, which will temporarily stop all foreclosure proceedings, lawsuits, repossessions, garnishments, and debt collection activities while you are going through the court’s bankruptcy proceedings.
Be A Smart Consumer
Investigate the company before retaining its services!
The following investigative resources should be contacted before making your decision:
