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Beware of Debt Settlement Companies!

Why is there still a market for debt settlement companies?  Could it be the “debt settlement” company’s tantalizing promise to cut your debt in half, or better yet, to make it disappear into thin air? Given the state of our economy and the ever increasing rates of unemployment, a debtor’s desire to obtain a quick fix, a fast settlement, and a means to avoid court is understandable.  However, the old adage has never sounded more clearly: if it a deal sounds too good, it probably is.  Stay away from these companies at all cost!

Back in 2009, Attorney General Andrew M. Cuomo, who was in the midst of a nationwide investigation into the underhanded practices routinely engaged in by the debt settlement industry, won a lawsuit against Nationwide Asset Services, Inc.  The decision barred the company, and its affiliates, from doing business in the State of New York unless it posted a $500,000 bond to protect consumers.  The debt settlement company was also fined $200,000 in for defrauding close to 2,000 consumers.

In light of recent news coverage regarding Michael Levitis, the greedy owner of Brooklyn’s Russian nightclub, Rasputin as well as the ongoing investigations into the debt settlement industry, I find it difficult to understand why consumers are still being run over the coals by these companies. Levitis walked away with upwards of $2 million from desperate consumers who wanted to clear their credit and believed that their payments would be applied toward their outstanding debts.

Debt settlement companies will encourage consumers to stop making payments to their creditors and instead, make payments to their “escrow account.”  What they don’t tell consumers is that, while they are failing to make payments, their creditors are charging them late fees and interest, which can double and sometimes triple their debt.  The creditor can and often does sue the consumer for the debt while he/she is paying the debt settlement company.  Even more problematic is that these companies are notorious for placing a provision in their agreements whereby they are not obligated to represent the consumer in court!  Consumers are left to fend for themselves in court on a debt they have been “paying” to these companies.

Consumers are protected by a whole host of laws governing debt settlement companies.  These companies however, blatantly refuse to obey the law.  If you have signed up to have your debt “settled” by one of these companies, you should know your rights and contact an attorney if you can’t get the matter resolved on your own.  Good luck!


By: Jennifer Addonizio Rozen, Partner at Fishman & Mallon LLP

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