Tuesday, August 30, 2011

A Lesson from Court: Beware The Help of Debt Consolidation Companies

So I'm in court today for a motion, which I did win, which is always happy making.

Of course some leave court not too happy.

As I'm waiting to be called, I get to listen to a case where a creditor (a credit card company) has a $15,000 judgment against the defendant and she's filing a motion to object to their garnishment.

Her grounds are she doesn't like the interest rate, but since the interest rate is statutory, her argument doesn't get a lot of traction with the judge. The motion was pretty frivilous and an attempt to delay the creditor from garnishing her wages.

As the judge tries to get the parties to come to some kind of payment plan, she obstinately refuse to make a payment plan as she states that she's already sending her money to a debt consolidation company to supposedly reduce her debts.

Here's how this works (at least in this case): She hires the debt consolidation company. The DCC, for a fee, takes her money and accumulates it in an account while she does not pay her creditors and they don't pay her creditors.

The cunning plan is for the account to accumulate enough so that the DCC can negotiate with creditors for discounts in return for lump sum payments to settle the debts.

This obviously doesn't make creditors happy who are waiting to get paid, and they don't have to wait or deal only with the DCC.

Nor does it make this lady too happy considering she's being sued and garnished by creditors while she continues to pay the DCC to squirrel away her money and eventually negotiate with her numerous creditors.

She could have done the same thing herself without paying the fees and had more money to pay down her debts.

Now she's going to be stuck being garnished by at least one creditor who she can't compromise with and pay off with a lump sum as the DCC has her money and she's paying them and sending them money as her credit score goes downhill and she'll likely be sued by other creditors as well.

So if you're considering hiring a DCC, read the agreement carefully, make sure you understand how it supposedly works and what you're going to pay them to do it, and understand the consequences of retaining a DCC. Then get someone else you trust to read it over and see if it makes any sense to them before you consider doing it.

Some DCCs may very well be reputable and helpful, but there's a number out there that sell a desperate debtor a bill of goods and instead of helping get them sucked deeper into a morass of debt and trouble.

Instead of a lifeline, it can lead to a new nightmare.

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