Satan! Satan! Satan! (Because it's the "Special" Halloween Edition)
Having
trouble paying your bills? No longer answering the phone unless you
recognize the caller ID number? Used a credit card to pay for
groceries lately? More than once? Skipped a utilities bill to make
the monthly minimum on a credit card? Forget the last time you paid
more than the monthly minimum?
Well,
friend. If the answer to one or more of these questions is in the
affirmative, you are in, what attorneys describe as, “a jam,
financial-wise,” because, sadly, that is how attorneys speak.
Assuming
this is the case, you may have recently noticed advertisements for
“Debt Settlement Agencies.” They are everywhere, these
advertisements, and they have been for a while, but you're more apt
to notice them while being, financially-speaking, all jammed up. In
fact, depending on just how jammed up you are (finance-wise),
you're liable to start seeing them all over the place, these advertisements:
on TV, on billboards, on the internet, in direct mailers, in your dreams. [Hint: if
you are receiving direct mailers from Debt Settlement Agencies, you
are definitely jammed
up, finance-wise.]
What
these DSAs (and I'm just going to start calling them that from now
on), promise is: (1) to reduce your debts by negotiating with your
creditors on your behalf, so that (2) you can avoid bankruptcy.
It's
a good pitch, right? Lower your debts and avoid bankruptcy.
So
maybe by now you're starting to give these DSAs some serious thought.
It can't hurt to try it, you might be telling yourself. After all,
even if it doesn't work, there's always . . . bankruptcy. You know, the (insert scary Halloween music here) last resort.
“Is
a Debt Settlement Agency right for me?”
The
answer to this question, as any lawyer will tell you, in answer to any question you ever ask, is: "Well, it depends." In this case, it depends on whether you're
considering buying a
DSA or hiring one. If
it's the former, you'll need to ask someone else. They look
profitable to me, but I know nothing about investing. If it's the
latter, the answer is a nearly unequivocal “almost definitely not,”
which is about as close as you'll ever get to a “yes/no” answer
from a lawyer.
The
reason why a DSA is almost definitely not the right solution for you
(no matter who you are), is pretty simple and has almost nothing to
do with the well-documented fraudulent,
abusive and deceptive practices of DSAs. The reason is simply that a DSA
is a model that is designed to fail. (No, not the “business-model”
– no doubt the owners of DSAs do quite well.) It is a model that is
designed to fail the very people it is purported to attempt to help.
Debt Settlement Agencies do not work
because they cannot work.
The
two-pronged goal of a DSA is to (1) reduce your debts so that (2) you
can avoid bankruptcy. In practice, a DSA almost never reduces your
debts and has no measurable effect on whether you ultimately file bankruptcy or
not.
DSAs
claim that they will negotiate “lump-sum” settlements with your
creditors, who, they will tell you, would much prefer to get a smaller
percentage of your outstanding balance now, in a single payment,
rather than having it dribble in month by month.1
OK,
you think. That sounds good. But
wait a minute – where does the money to make these lump-sum
settlements come from?
It
comes from you, of course.
But
I don't have any money! If I did, I wouldn't be here, in this
finance-related jam!
Of
course not, your DSA-rep soothes. Not yet anyway. That's one of the
services we offer – we will help you raise this money, by setting
up a monthly payment plan for you. All you need to do (after signing
the agreement we have just emailed to you in PDF format), is pay us
the specified amount every month for the specified number of months.
We will deposit that money in an interest-bearing escrow-type
account, and when the funds in that account have grown enough for us
to make reasonable lump-sum offers to your creditors, we will begin
negotiating your way out of debt!
You
mull this over for a bit. It's hard to concentrate these days, what with
all the stress. The kids crying, always crying. And the damned dog, always barking . . . . Plus, you've
started drinking again. Which your wife is not at all happy about. Whoa!
Wait a minute – I can't afford another monthly bill! I'm not making
ends meet as things are now. How can I possible afford to pay you?
Not
to worry, not to worry. Couldn't be easier. Just stop paying your
creditors and pay us instead. We are going to get you out of debt.
What have your creditors done for you lately? Nothing. Remember – our results are
proven. We can – and will! – reduce your debt by as much as 50 percent!
Or more!
Well, there's no arguing with that. You print out the form and sign it, have your
wife sign it when she gets off work from her second job, and the next
day you take it to work, scan it, and email it to your new DSA. What
the hell, if it doesn't work, you can always file bankruptcy later,
right?
You
stop paying your creditors and start paying your DSA. For a while, all goes well. Your single monthly payment to the DSA, even with
their $50 per month fee2,
is less than the total amount you were paying to your creditors before. Suddenly, you are able to pay all of your monthly bills. In
fact, you have a little bit left over, so you can go out for dinner
once in a while, or maybe see a movie.
I'm
sure glad I made that call . . .
From
the depths of Hell, rumblings . . .
It
does not take long for your creditors to notice that you have stopped paying them. They start calling you. You tell them not to
worry – you've hired a DSA who will take care of everything. But
they keep calling anyway. It's as if they haven't heard you, or that they don't care about your DSA.
On your next billing statements, you notice that they have increased your
interest rate, from an already debilitating 20-something percent, to
more than 30 percent, their “default” rate. “But I haven't
defaulted,” you explain. “I've hired an agency to take care of
this for me . . .”
They
charge late-payment penalties and cut off the use of your credit
cards. (They don't “close” the accounts, at least not yet.)
You
start to worry. You call your DSA and explain what's been happening.
They calm you down, they counsel patience. Everything is going
according to plan. You have nothing to worry about. Just keep making
your payments to us.
The
next thing you notice is that your creditors are charging you
“over-limit” penalties, even though you haven't charged anything
in months and while, yeah, you were close to the limit on some of
your cards, you weren't that
close, or at least you didn't think so.
And somewhere in the back of your mind you start calculating
how much your total debt has increased since hiring your DSA.
Be
patient, they tell you. It will all work out in the end.
Your
accounts are “charged off” and turned over to collection agencies
and law firms, who send you Demand Letters for amounts you don't even recognize. The total debt must be double
by now, but you don't even want to do the math.
And
then your creditors start suing you, one by one. You get certified
mail regularly. You come home from work to find notices taped to your
door directing you to come to the Sheriff's office immediately, to
claim your “very important papers.” Your wages are garnished.
Then, out of the blue, you
get a letter from your DSA, congratulating you with the “good news”
that they have just settled one of your accounts. It's the smallest
of the accounts you turned over to them, which makes sense, they
explain, because there was not enough money in your account to
attempt to settle the larger ones, at least not yet. Okay,
that makes sense . . . . And
then you look at the amount and realize that they have “settled”
this account for more
than the amount it was when you hired them. And, charged you a 20%
“commission” on the discounted amount.
You
are already shaking when the phone rings. It's your wife, who is
calling you from jail. She was stopped for having a taillight out on her car and
when the officer ran her information, realized that she had a warrant
out for her arrest. “So do you, by the way,” she tells you,
between sobs. Apparently, you both failed to appear for a
debtor's exam. Neither of you remember getting notice of this. At
some point, you realize that she has the children with her. “I need
you to bail me out,” she sobs. “The next hearing date is Friday!”
(It is Tuesday. “Must remember to take the recycling out to the
street,” you think.)
Enough
is enough. You call your DSA and demand that your escrow account be
released to you immediately. You are informed, calmly, that you have
no escrow account. The entire amount was used to settle one of your
accounts. Your current balance is negative, because they deducted
their commission on your “savings.” The woman on the phone begins
explaining the tax-consequences (being sure to remind you that she cannot give "legal advice"), about how you will likely be receiving a
1099 form and that the IRS will “probably” tax the discount on the settlement as
“income.” Which is right about when the smoke alarm goes off. And the
dog starts barking. Dinner is burned. The house fills
with smoke. The doorbell rings. You drop the phone and sink to the
floor and begin sobbing. The dog – God, how you hate that dog –
comes over and licks the tears off your face.
Epilogue.
The
suicide note is short and to the point:
Maybe
that Debt Settlement Agency wasn't such a good idea after all.
1 This
assumption is, of course, misguided. A typical credit card company,
for example, would much prefer that you make minimum monthly
payments for the rest of your life than for you to actually pay off
your balance.
2 Not
all DSAs charge a monthly fee.
