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Debt Management Law News

February 26, 2010

Avoid debt consolidation swindlers

State and local agencies are taking more complaints from Wisconsinites who’ve been swindled by companies that promise to settle debt for a fraction of what’s owed, the Attorney General’s office said Wednesday.

“These companies are required to be licensed by the Department of Financial Institutions and the new ones that are cropping up, that you’re hearing on the radio, often cases are not licensed,” Asst. Attorney General

Nelle Rohlich told Channel 5 News.

Becky Clifford, of Appleton, contacted Texas-based DebtXS in 2004 in an effort to settle her nearly $30,000 credit card debt. Clifford found the company on the internet, and at the time, it did not appear to have any complaints filed against it.

"Huge relief. Finally, somebody understands what I'm going through, we have a solution in three years it will be done, what a great feeling,” Clifford said.

In the first three months, Clifford paid DebtXS $2,100. After that, the company advised her to stop making her monthly payments, and place that money in a savings account. Once the credit card company turned her case over to a collection agency, DebtXS would intervene and settle the debt.

"Within a year I had settled. I had one credit card settled for about 25 cents on the dollar…I was thrilled."

The following year, Clifford was shocked when the IRS called her to collect income tax on the amount DebtXS had settled.

"I had no idea we had to claim that on our taxes, so all of the sudden I had thousands of dollars in taxes to pay because I had settled," Clifford said.

As Clifford tried to work with DebtXS to settle her the debt on her remaining credit cards, debt collectors filed a lawsuit against her, and Debt XS told her they could not help her with her legal situation.

"I'm scared to death, I'm told I'm being sued, are they going to garnish my wages?"

While Clifford had researched DebtXS before hiring the company in 2004, the Better Business Bureau currently rates the company an “F” – a failing grade.

"If they guarantee you they're going to take 40%, 70% off of your debt, I'd be very wary,” said JoEllen Wollangk, Vice President of Northeast Wisconsin office of the Better Business Bureau.

Wollangk said some companies that promise to settle mortgage or credit card debt are legitimate bit there are some “red flags” that consumers should look for when looking at options to settle or pay off credit card debt.

For instance, Wollangk says consumers should not pay thousands of dollars in fees to a company up-front. Wollangk says that money would be more wisely spent paying the lender. She also says any person trying to settle a debt should communicate openly with his or her lender, in an effort to negotiate a better interest rate, or some sort of settlement.

"The first step is to contact that company whether it's the mortgage company or your bank or credit card company and try to negotiate yourself with them," Wollangk said.

Wollangk says monthly payments should not be discontinued and most lenders are willing to work with borrowers on coming up with some sort of plan for repayment.

“Most of the time they're going to want something rather than nothing. They don't want you to file bankruptcy and have them lose a great deal of money,” Wollangk said.

Meanwhile, Becky Clifford expects to have her debt paid in full in 2011. She said a depression-era provision in state statute allowed her to arrange payments of her debt over a three years, and avoid a negative impact on her credit score.

Channel 5 News attempted to contact DebtXS by phone and email for comment. The calls were disconnected and the emails returned as “undeliverable.” DebtXS is not registered with the Dept. of Financial Institutions.

Sometimes, debt can be overwhelming, and bankruptcy becomes necessary.
Bankruptcy can sometimes be difficult. If you are considering bankruptcy, contact the Houston bankruptcy lawyers of Weston & Associates, PLLC at 713-623-4242

www.wfrv.com


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