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The Ugly Truth About Debt Relief Companies

I just found an eye opening video by Gary Fraley, a certified bankruptcy attorney in California, on why debt relief companies should be avoided!

Watch the video – it’s short, to the point, and there’s a cool saddle in the back ground — looks like a former Texas transplant to California.  I kept looking for a cowboy hat, but that’s probably in his Ford truck hung on the rifle rack.  Okay, I may have been watching too many Ranches on Netflix lately!

Some of the highlights include:

  • Major lenders such as Chase don’t even deal with these companies;
  • The debt relief company ignores car payments, medical bills, personal loans or student loans which are some of the largest financial burdens for consumers;
  • More than half of the debt relief plans fail (listen all the way to the end for more damning numbers – for example 70% of debt isn’t settled because they focus on small accounts);
  • You are required to pay into an account controlled by the debt relief company — while credit reports are hit with delinquencies and even lawsuits are filed;
  • The debt relief company won’t represent you in the eventual lawsuits;
  • The lawsuits are not stayed;
  • Many people learn of a judgment against them only after the fact – when they are surprised by a garnishment or bank levy;
  • 20% or higher fees are charged by the debt relief company; and
  • Very little, if any attention, is paid to the fact the consumer will receive a 1099 for any forgiveness which is taxed by the IRS.

Bottom line:  Debt relief and consolidation companies give consumers bad credit for years, and tend not to fix much in the end.  Filing bankruptcy with a knowledgeable and experienced bankruptcy attorney is often a far quicker and less expensive option, and will help rebuild someone’s credit faster.

Thanks to Mr. Fraley for an eye opening look behind the curtain and for encouraging us attorneys to share how these companies work.

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