Legal Question in Credit and Debt Law in Pennsylvania

Re: Debt Settlement

Just to expound upon what my colleagues John and Roger have stated: if you are wondering how these "agencies" are able to magically settle debt for you, I'll let you in on the secret. By the time you are making an appointment with a debt collection agency, you are probably in dire straits. Bankruptcy is likely a term that has been on your mind recently. Your creditors are probably aware of this. These agencies are paid a fee (by you) to convince your creditors that they are better off by settling your debt and getting a smaller piece of it than to pursue the full debt and end up pushing you into bankruptcy, in which case they may get pennies on the dollar. So the 'magic' here is all about negotiation--you are paying somebody a negotiation fee, which you can likely do yourself. If you're not comfortable with this, consider consulting a lawyer who will maintain confidentiality and is licensed by the State in which he/she practices, and is sworn to uphold the ethical rules of his profession--failing which, he can be disbarred. Compare that to the debt collection industry, interview some of its agents, and make your own decisions with who you feel more comfortable entrusting your money/case to.

Re: Debt Settlement

The debt settlement companies are legal but I discourage my clients from using them for a couple of reasons. First is cost. They charge more than a lawyer and you are better off dealing with a lawyer.

Secondly, at least right now, collection agencies and creditors, especially those who have "soft" debts (like the 30% interest on a five year old credit card debt) are usually willing to settle directly with you.

Third, and most important, once you are represented by an attorney, the collectors can no longer call you directly. If they do, they are in violation of the Fair Debt Collection Practices Act and the Pennsylvania Fair Credit Extension Uniformity Act and you can sue them. The debt relief people can't do that for you.

Re: Debt Settlement

You asked about debt relief companies.

Most, if not all, debt relief companies are a scam. Barely legal and often cross the line. Those agencies do little that a debtor could not do yourself. What they can do is pay the creditors according to a pre-negotiated schedule amounts that a debtor have outstanding. These agencies are by law and contract/agreement prevented from counseling a person as to bankruptcy. The same law actually tried to muzzle lawyers. (Guess who lobbied for that law and rammed it through Congress?)

Debt relief agencies are generally not worth the money they are paid. The bankruptcy law now requires that a debtor seek certification (by attending a short and absolutely worthless class about managing personal finances) prior to filing bankruptcy. Then, before being granted a discharge in bankruptcy the debtor must attend yet another worthless class to obtain another certificate. Both classes cost the debtor money (which could probably be better spent) and both classes spend the greater portion of time trying to dissuade the debtor from filing bankruptcy.

Bankruptcy is a perfectly legitimate means of managing one's finances when things get out of control. Debtors should skip the debt relief organizations and manage their finances on their own. There are numerous Web sites that offer reasonable and impartial advice about these topics. (Motley Fool is one of my favorites.)

And don't forget that any debtor can and should request that the credit counselor waive the fees for the bankruptcy certification classes (they make it sound like a big deal and drag their feet to do it, but are required, according to the law, to waive the fee).

Regards,

Roger