Beware of debt relief agencies as an alternative to bankruptcy

Beware of debt relief agencies as an alternative to bankruptcy

Facing wage garnishment, creditor harassment and seemingly endless bills may be overwhelming for some Arizona residents and they may be willing to do anything to put at end to it. However, in an attempt to settle their debts, they may be turning to the wrong place for assistance, including an out-of-state debt-relief company that has been promising help to its customers, but may have been funneling off funds for itself instead.

According to the Department of Justice of the state pursuing the claim against the company, the company undertook to repay its customer's debts, including credit card bills and mortgage payments, while negotiating reduced debt amounts with the customer's creditors. Many of the company's customers were senior citizens. By availing themselves of this option, customers may have felt that they could manage their finances without declaring bankruptcy.

Before undertaking any of these steps however, the company required customers to put up their own money in an escrow account. According to some customers, the company itself pocketed the money, rather than giving it to the creditors as payments toward their debts. According to prosecutors, of the $1.5 million given by 425 people, only $275,000 was used for settlements; on the other hand, the debt relief company's profits totaled $960,000. By pursuing the company, the Department of Justice hopes to shut down its business so that other vulnerable people are not victimized elsewhere.

In the face of staggering debt, many Arizona residents may be looking for options to pay down their debt and may not consider filing for bankruptcy because of a perceived social stigma. However, the legal option is there to protect those in their situation, withChapter 13 bankruptcy an option for those who want to repay their creditors, but need to make payments based on their income and over an extended period of time.

Source: kgw.com, "DOJ seeks $10M in damages from Texas debt-relief company," Chris Willis, July 18, 2013

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