This month, numerous debt settlement operations received restraining orders from the Federal Trade Commission. They cited The Debt Settlement Company, The Debt Elimination Center, Money Helps, Edge Solutions, and Pay Help, Inc. All of these companies marketed debt relief through the Debt Meltdown Program. These were operated by Miriam and Robert Lovinger.
This is not the first time the federal government has worked to shut down debt settlement companies that misrepresent the value of the services that they can provide. What is remarkable is that these failed programs are no different than most other debt settlement companies!
At the center of the complaint is that the defendants that operated these programs falsely claimed that they could eliminate all of your debt for 40-60 percent. This is the same essential promise made by most debt settlement companies.
Customers were told to ignore summons and other threats of legal action. Many customers were left with thousands in extra interest, late fees and many were forced to pay creditors litigation costs as well. In the mean time, they were out thousands of dollars that they paid into this Debt Meltdown Program. Their credit was also destroyed.
The lucky ones that were able to receive settlements on some of their debts received an unwelcome surprise when the IRS advised them they owed taxes on forgiven debt. That’s right, any savings through debt settlement is generally taxable as a form of income. You can be sure that almost no debt settlement company will tell you that. Besides, all they have to say is they are not licensed to provide tax advice.
Providing information regarding taxes on forgiven debt is not tax advice. It is informing a debtor that they will file a 1099-C form with the IRS automatically anytime you save $600 or more in a settlement. For any debt settlement company to withhold this information is a further travesty.
Debt settlement is only attractive when you negotiate settlements yourself on your own behalf. And yes, nearly all of your major unsecured debts should be in collections to even consider it. After all, late payments and charge-offs destroy your credit.
If you are facing numerous legal battles, then you might consider talking with an attorney about bankruptcy. If you have some charge-offs that you want to settle, you can negotiate these on your own. If you are only a couple payments behind, you might be able to get back on track through credit counseling.
The companies involved were attempting to help their clients resolve their debt, too bad it came to this.
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UPDATE: The Federal Trade Commission has established a hotline for affected clients of these services. Current and former clients should call the FTC at 202-326-2998 in order to receive additional information.
Sure, there are debt settlement law firms out there, and
some of them are very good at what they do. However, some of these firms
charge 25% or more of the enrolled debt. Many, if not most, consumers
simply canТt afford to pay fees of this magnitude. Also, being an
attorney in one state does not offer any special protection to a
consumer in another state where that attorney is not licensed. ItТs
simply not necessary to hire an attorney to settle your debts. Most
consumers can handle it on their own with a little training and
coaching.
news article about debt settlement