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Bankruptcy lawyers issue warning about debt-settlement companies, P. 2

In the last post, this blog began a discussion of issues that consumers can face week entering into a contract with a debt-settlement company.

Often after a person defaults on the debt (meaning that the consumer stops paying the monthly bill during the debt settlement program), the creditor may often sue to obtain a judgment on the debt. That process may open the gateway to bank account seizures and wage garnishment. Fees and interest can be tacked on, and if settlements are not reached on all of the consumer's debt (if any of the debt is resolved), the consumer can be in worse shape, and without the desired debt relief.

Consumer protection laws are in place aimed at reducing some of the adverse effects that consumers have experienced in the area of debt settlement programs. An Ohio based company recently settled a lawsuit with the Federal Trade Commission. The FTC accused the company of fraudulently luring people into deals to get out of debt quickly.

The federal consumer protection rules make it illegal for debt-settlement companies to charge upfront fees. Many rules are in place to reduce fraud.

But, as the NACBA warns, most debts are not settled under a debt-settlement program. Consumers who have defaulted on the debts under the program are often left in deeper debt than when the program began. The Better Business Bureau calls the debt-settlement industry an "inherently problematic business," according to the NACBA.

People in the Cincinnati area who are facing financial distress due to the economy, high balances of unsecured debt and other financial obligations may have options in finding meaningful debt relief. Bankruptcy is one option, but it may not be for everybody. A consumer can speak with a Cincinnati bankruptcy lawyer for an assessment of individual circumstances.


  • The Washington Post, "Debt settlement is rarely a done deal," Michelle Singletary, Oct. 18, 2012
  • NACBA, "The Debt Settlement Trap: The #1 Threat Facing Deeply Indebted Americans," Oct. 2012

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