When someone is considering filing bankruptcy, it is not uncommon for them to also be considering the use of a debt settlement company. These companies often advertise that they are a better alternative to bankruptcy, and that they will help you settle your debts for “pennies on the dollar.” A recent article on DailyFinance warns consumers of the possible perils of the use of debt settlement companies. I have had potential clients call me after paying large amounts of money upfront to debt settlement companies, only to find out that their debts have not been settled. This is a common problem; the DailyFinance article discusses how during public hearings regarding a change in FTC rules, the debt settlement company industry admitted that “as few as 30% of consumers ever achieve a settlement of any kind.”
On July 28, 2010, the FTC adopted a rule that prohibits firms from collecting upfront fees from consumers in debt settlement cases. Unfortunately, the new rule does not take effect until October 27, 2010, leaving unwary consumers open to potential abuse by debt settlement companies in the meantime.