February 7, 2009 (Original publish date) • By Dennis Beaver
If you listen to Sirius, XM Satellite, or just regular AM radio, you’ve probably heard ads aimed at listeners who are in financial trouble. Some suggest voodoo ways to get out of debt, pay off your house, car, and discover economic Nirvana in a matter of months.
Other ads describe the joys of establishing a Nevada corporation, getting “all the business credit you need with no personal liability.” If you believe the “Nevada Corporation” pitch and send them money, you do not need the services of a lawyer. A psychiatrist is a better choice.
A dose of reality can be found by using a search engine and typing the company name followed by the words rip off or scam. I only wonder why most of these ads are permitted to be carried by credible, national broadcasters, especially those for the Nevada “Asset Protection” group of con artists.
However, some companies which claim to reduce debt are legit and can deliver substantial money savings for a narrow group of folks who are in trouble. So, if you are in debt yourself, or know someone who is desperately trying to pay off their bills, today’s article should be a starting point for doing your own research into debt reduction.
CCR — Credit Card Relief of Indianapolis — is one of the debt relief companies who advertises nationally and was extremely helpful in explaining what they do and who can be helped. While You and the Law obviously can’t make any recommendations, from my research, this concept is certainly worth looking into for some people.
Debt relief is also known as debt settlement or debt negotiation. You’ll might also read or hear the term “debt pro-rator.” The basic idea is to work with unsecured creditors (such as credit card companies) and reduce both the principal and interest rate on substantial outstanding balances.
Indianapolis attorney Tomas P. Dakich explained debt relief this way:
“The concept of debt relief is to work out a way creditors will take less money than you actually owe. Most would rather have half a loaf than nothing at all. So, we help people avoid bankruptcy by reducing the total amount of what they owe unsecured creditors, most often for credit card debt.”
“With insurmountable debt — and high interest rates — you could be paying off bills for years and never get ahead. But many creditors will accept less than the full amount, just to get this account off of their books and to not run the risk of the debtor going bankrupt,” he added.
Attorney Dakich gave me a typical example of one of their clients, whom we will call Danny Debtor.
“Danny is employed, but deeply in debt. He is attempting to pay off $30,000 of credit card and other unsecured debt. He is unable to make all of these payments, and by the time he calls CCR or some other debt relief company, may have already been sued. Our job is to offer, perhaps $5,000 to settle $10,000 in debt. But it does not happen overnight, and could take up to three years,” he cautions.
The founder of Credit Card Relief is a former journalist for the Los Angeles Times, John Nichols.
“Whenever possible, our goal is to prevent clients from getting deeper into trouble. For example, they must keep their car and house payments current. We do not touch secured debt,” he points out.
“So, let’s say that one of your readers becomes a client of ours. Instead of continuing to make those regular unsecured payments, funds will be paid into our trust account, referred to as the Enrolled Member’s Trust. The client continues to pay into that trust account until a significant amount of money is accumulated and our lawyers pick up the phone and start negotiating with the various creditors, to make them a lump-sum settlement offer.”
An obvious question arose during my discussions with Mr. Nichols: “I’m running the risk of being sued if I stop making my regular payments, aren’t I?” His answer was encouraging for people in that precise situation.
“That is an extremely good question, and the logical answer would appear to be, yes, you’ll be sued right away. But that has not proven to be the case in today’s financial environment. About 20 percent of the time, credit card companies will file suit. But with so many people in financial trouble, it is not economically viable to litigate most unpaid accounts.”
“Certainly, if a case that we are handling goes to a collection agency or a suit is filed, our attorneys will immediately attempt to enter into settlement agreement,” he stressed.
“Our clients go through a qualification process. We verify that you have income, money to pay the debts and that you have not fraudulently run up debt. We keep tabs on your credit report and score. As your payments into the trust accumulate, our lawyers are in a position of settling credit card debt from 30 to 60 cents on the dollar — including our fees — resulting in a substantial savings,” Mr. Nichols concluded.
In speaking with a number of companies in the debt relief business, while fees vary, typically, a client will pay a monthly maintenance fee of around $50 and 25 perent settlement fee, based on the amount saved the client. Services include a local attorney, and possibly a national mediation law firm.
So, debt relief firms can help certain clients. However, in speaking with several bankruptcy attorneys, I was told the following:
“It is critical for the client to keep their side of the agreement. We see so many examples of clients who simply do not keep their end of the bargain, and stop making payments into the trust account,” one Los Angeles based bankruptcy attorney told me.
While there can be savings down the road, it is often outweighed by the “certainty of a ruined credit report, and the likelihood of being sued,” I was repeatedly told. Also, you need to be sure that you are dealing with a California licensed attorney, or a company with a surety bond, to protect the money you are paying them.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.