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Home > Blog > Bankruptcy and Debt Relief > Avoid Debt Settlement Fraud With These 5 Tips

Avoid Debt Settlement Fraud With These 5 Tips

Criminals love to target people who are desperate because they’re in a vulnerable emotional state, making them susceptible to believing things that seem too good to be true. Desperate people are easy targets because they don’t see the red flags that would otherwise raise suspicion.

The total US consumer debt has reached over $3.4 trillion, and that makes the debt settlement industry a prime choice for criminals to run fraudulent debt settlement scams.

If you’re looking for ways to reduce, consolidate, or eliminate your debt, here are 5 red flags to be aware of that may indicate fraud:

  1. You can’t erase legitimate items from your credit report

A company offering to help you erase legitimate negative items from your credit report is the biggest red flag you need to be aware of. At first, it might sound like a dream come true to be able to erase your past mistakes and move on with your life, but it isn’t.

Seeing the results doesn’t make it legit

Fraudulent debt settlement companies that promise to remove legitimate negative items from your credit history can actually accomplish this seemingly impossible task, although it’s illegal and never permanent. The results only last long enough for them to collect your payment, and by the time your check has been cashed, the items are back on your report.

The items are removed temporarily through an illegal tactic called jamming.” The company mails hoards of requests disputing the items on your credit report in hopes that one will slip through the cracks before it can be correctly verified.

When a credit bureau receives a dispute, they forward it to the lender for verification. The Fair Credit Reporting Act requires agencies to review and respond to all disputes received within 30 days. If the lender fails to verify the debt within 30 days, the agency has to remove the record being disputed. Immediately after 30 days, all unverified disputes are gone from the person’s credit history.

The problem is that collection agencies report outstanding debt to all major credit bureaus on a monthly basis, and by the next reporting cycle those removed items come back.

  1. Don’t blindly trust BBB ratings

The Better Business Bureau (BBB) was originally created to be a mediator between consumers and businesses, and hold businesses accountable to resolve consumer complaints. Unfortunately, it’s been uncovered that the BBB itself is running a scam of their own by providing A+ ratings for businesses that have had serious legal action taken against them.

Many of these businesses have CEOs behind bars. The BBB has also been caught providing A+ ratings for fake businesses as long as they pay their yearly membership fees. Meanwhile, legitimate businesses with great reputations like Starbucks and Microsoft don’t pay membership fees and have lower ratings.

Just because a debt relief company has a great rating with the BBB doesn’t mean it’s trustworthy. You’ll need to do some independent research on the company to find out if they can be trusted.

  1. Don’t pay any fees prior to your debt being settled

One of the most common tactics debt relief scams use is to request an upfront payment prior to settling your debt. A legitimate debt settlement company may charge you a monthly or one-time fee, but that fee is always added to the monthly payment you make after the debt has been settled.

As of October 27, 2010, it is illegal for any for-profit debt relief company to charge consumers a fee prior to the settlement of their debt. This law also requires that prior to collecting any fees, a written settlement agreement must exist between the consumer and creditor, and at least one payment has been made to the creditor after the settlement has been negotiated.

Additionally, if the debt settlement company bases its fee on a percentage of what they’ve saved the consumer, that company has to charge the same percentage for all debts settled by using their services. This means that if you have seven debts settled by the same company, they have to charge you the same percentage for each debt.

  1. Be wary of unfounded guarantees

When it comes to settling debt and negotiations, there are no guarantees. Be wary of any company that promises to eliminate all unsecured debt, or stop collection calls and lawsuits. While you might experience these results, it’s not something a settlement company can guarantee. If a company makes these promises, it could be a marketing tactic to get you to use their services, but it’s likely a sign of an illegitimate company.

Research the debt relief company you’re considering in-depth before committing to their services and stay away from companies with bad reviews. If you encounter reviews that state legitimate negative items were removed from people’s credit reports, choose a different company. Those reviews were either left by people before the items landed back on their report, or they were paid to leave the reviews.

  1. Handle your debt legitimately

Being in debt doesn’t feel good, but if you created the debt, the only way to resolve it is to handle it legitimately. If you can’t pay your debts in full, consolidation and settlement are two viable options you can use to avoid having to file for bankruptcy.

Most collection agencies will work with you to create a payment plan that works for you, and extend it over time so you don’t have to worry about having your wages garnished, ending up with a lien on your bank account, or being sued.

Contact a lawyer before filing for bankruptcy

If you are in over your head and can’t see a way out, before you file for bankruptcy on your own, contact Rowdy Williams to discuss the details of your situation. An experienced attorney can help you understand the pros and cons of filing for Chapter 7 and Chapter 13 bankruptcy to reorganize your debt.

You may not need to file bankruptcy, but if you do, you’ll want an experienced attorney to help you make the right decisions.

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