Are all debt programs scams?

[kimmerspixelated]

If you have had any success in dealing with settlements,restoration or validation for eventual deletion companies, list them here.

[moriah]

1. Never had luck with companies.

You can do exactly what they do yourself, anyway. :)

[SlipperySlope]

2. Didn't work for my close relatives

I've never used them.

Some close relatives tried. Accomplished nothing at all.

The law already provides a way to force renegotiation and settlement with your creditors; it is called bankruptcy. It isn't a four-letter-word anymore.

[regnaD kciN]

8. Yes, but bankruptcy usually means liquidating most of your assets...

...while debt programs don't force you to do so.

[SlipperySlope]

13. That doesn't matter...

that doesn't matter when "all your assets" are basically a 12 year old compact car and a few cardboard boxes full of stuff in a storage shed.

[SoCalDem]

3. Most are. Think about it. If they are not a non-profit, they HAVE to make money somehow

and the companies they pretend to negotiate with are not gonna be paying them to reduce the "amount owed", so they get the money from YOU!

Their "success" in negotiating is often not much more than you could do yourself...and don't forget, if you are in really DEEP doo-doo, bankruptcy still exists. It's harder to do now, but many people still qualify for Chapter 7.

Add up what you owe vs what you own free & clear..If your state is lenient about home-ownership, you may even be able to exclude the home from being taken, and pension plans & retirement plans are exempt, so don;t waste time & money paying somebody to just postpone the inevitable...and contrary to internet fables, the credit card companies do NOT want to repo your "stuff".

Somewhere online there has to be a calculator that helps you figure out your options..

[Warpy]

4. Some people don't have what it takes upstairs

to write out a budget that helps them pay down their debts or to negotiate directly with debt holders to get exorbitant interest rates reduced. There are some decent companies out there to help these people. A trip to the BBB site and a quick Google of the company names will tell you which ones are outright scams.

I'd like to think everybody on DU has the capacity to do these things for themselves, but I realize we're all blockheads in some area of our lives, myself included. My advice is for people who are blockheads about money.

[PBS Poll-435]

5. Any debt "forgiveness" in excess of $600.00 from any single creditor generates a 1099-C

Meaning you might have to pay tax on the amount "forgiven".

[regnaD kciN]

7. I believe that has recently changed...

...although I don't know the specifics.

[PBS Poll-435]

9. Things have changed a little bit, but the basics haven't changed

http://www.irs.gov/pub/irs-pdf/i1099ac.pdf

[virgogal]

6. Probably.

[slackmaster]

10. Follow the old rule - If something sounds too good to be true,

It probably isn't true.

[dionysus]

11. i am guessing the non profit ones aren't and the for profit ones very well could be.

it works basically like this;

debt settlement involves purposefully defaulting on a bill. see, the credit card companies take out insurance policies for this kind of thing. after you've been in default for 90 days, they make an insurance claim and get some amount of money (most, all, i don't know).

after they get this money, they'll eventually start offering to settle with you for less, so they can get as much $$ as possible.

a for profit debt settlement company sets up an escrow account, which you pay into monthly, and this money accumulates until the credit card money makes an offer to settle that you accept.

the debt settlement company handles this. they take a portion of your monthly "payment" as a fee. whether or not it's worth it, it might be, it might be a waste of money. i've never done it before, but i recently researched it.

you could do all of this yourself for free if you're willing to put up with the collection calls and threats.

either way, your credit rating will get pounded.

[regnaD kciN]

12. There are two different types of programs...

The first is a "debt counseling" service, the most reliable of which are non-profits affiliated with Credit Counseling Services of America. These analyze your debts and work out a repayment plan acceptable to your creditors. Generally, these will reduce or eliminate interest and penalties, but won't reduce your principal. While that sounds bad, keep in mind that most people in credit trouble are already paying 30% or so interest, so most of their payments are interest rather than principal. Reducing those can be a real help.

The other type is the kind that advertises on radio, promising to use "programs the credit-card companies don't want you to know" to "cut your debt by up to half!" (Which brings to mind the Monty Python line about how such a promise is essentially meaningless, since "up to" includes the number "zero.") These for-profit companies work out a total that they believe your creditors will accept, add their own fee on the top, and set up a payment plan for that amount. Then, they tell you to change your mailing address on all your bills to their office, start paying them, and stop paying your debts. According to them, they will field any collection attempts from your creditors and, after you have paid the full amount in your plan to them, go to your creditors and offer them that amount in exchange for dropping their claims against you and clearing your credit record.

What can go wrong with this plan? Well...

1) Your creditors might refuse to accept their settlement.

2) The debt-settlement company might go bankrupt, as Debt Relief U.S.A. did last year, leaving thousands of their clients out all the money they'd paid to the company, and still liable to their creditors for the full amount plus penalties and interest.

3) Your creditors might not decide to wait for the offer from the company, and simply track you down (you really think they're going to be stymied by the change-your-address gambit?) and go after a court settlement against you. This might only mean seizing your bank account and garnishing a portion of your wages, if you own little worth them taking action. But, if you own a house or any form of real property, be prepared to kiss it goodbye. The big question you have to ask is: do I have enough to justify my creditors coming after me? If so, debt-settlement programs aren't likely to help you. If not, you probably won't lose enough in bankruptcy to keep you from that step.

In short, if you really want to avoid bankruptcy, go with one of the non-profit credit-counseling services and see if you can work out a satisfactory repayment program. Otherwise, bankruptcy might be your only choice.

ONE THING TO REMEMBER: There are two forms of bankruptcy available to you. The first, Chapter 7, wipes out all your debts, but generally means you have to give up all your assets. The second, Chapter 11, means that you still have to repay an agreed-upon portion of your debt (and maybe 100% of it) over a period of three-to-five years, but waives the interest and allows you to keep your property. It's probably a good idea to check out the second as an alternative to debt-settlement programs.

[Scout]

14. we used Accel Services/GreenPath....

it's working for us.