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Helping good people through bad times

Avoiding debt relief plans that are too good to be true

Tennessee residents who have gotten themselves in over their head when it comes to debt are often desperate to find a way out. Many so-called debt settlement companies take advantage of this desperation and offer quick solutions that turn out to be little more than a way for these companies to make money off of what little these debtors still have. In the end, the victims continue to struggle financially.

One financial expert recently explained how debt settlement companies operate and why those in debt should avoid their services. These companies persuade potential clients to discontinue making payments on the debt they already have. Instead, the clients give the money to the debt relief firm, which offers a portion of that money in the form of a lump sum to the client's creditors for less than what is owed. The company knows that creditors will take a lump sum for less than the full amount owed because pursuing a debtor over long periods of time is expensive and they can write off what was owed but not paid.

This strategy, though, has problems for debtors. It damages credit scores, creditors can become more aggressive in seeking payment and a variety of charges - especially late fees and interest rates - can still pile up. Debtors also must pay high fees for the services of these companies. There is also the problem of fraud. Recently, the Federal Trade Commission has charged several debt settlement companies with making false claims, and that agency is in hot pursuit of other companies that are failing to deliver on their promises of debt relief.

When it comes to getting out from under debt, nothing works better than following a disciplined budget and sacrificing on some expenditures. However, sometimes filing for bankruptcy, under either Chapter 7 or Chapter 13, will prove to be the best course of action.

Source: The Reading Eagle, "Color of money: Be wary of offers to get out of debt quickly," Michelle Singletary, July 20, 2014

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Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

Phone: 423-624-4002
Toll Free: 800-257-7594
Fax: 423-624-0509
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