Dear Readers, Picture This:
Your spouse is out of job, the monthly income is halved and your family is left without health insurance. Just as you are managing somehow by slashing all unnecessary expenses your child is hospitalized for a tonsillectomy. Past-due bills are piling up, the number of calls from nasty creditors, and the letters threatening to foreclose on your mortgage, are on the rise too. You contact non-profit debt counseling services who manage to keep their promise of permanently lowering interest rates on some of your outstanding bills. But six months on, and having paid the sign-up charge and monthly fee of the agency, your debt only increases. The counseling services seems to have profited more.
Claim for help is hollow, and the promise to rescue, a scam. The combination of high household debt levels and major corporate layoffs in the past few years has led to a sudden increase in many organizations that depend on people falling for these claims.
But What About The Law?
Yes, the laws are all in place to safeguard fair practices and what not, but the rise of abusive practices is phenomenal even in the face of such laws. Such credit counseling agencies are typically small and offer services such as providing help with budgeting and management of debt. Individual cases determine future course of action, with some extreme cases even steered into bankruptcy, but a majority guided towards debt management programs.
"More recently," says Winston, "a new kind of agency has arisen." Instead of being locally-based, these agencies are national. And, he adds, "they pitch their services aggressively," advertising on television, in magazines and over the Internet.
According to Winston, self-promotion was traditionally not a practice of credit counselors, but the problem with such advertising is that oftentimes it is not truthful. It has been seen that the word “non-profit” misleads people into blindly believing such organizations, and their intent.
As a note of warning, he advises people in a financial crisis to be particularly wary of organizations, and have a clear understanding of the fee structure that they follow.
You need to ask the right questions about commissions, and be wary of any possible no tie up between the credit card company you owe money to, and the agency – this will obviously influence the advice you are given. You should know that, commission kicked back to the credit agency could range anywhere from 5 to 15 percent of the amount that is paid. Reduction of you debt in such a scenario need not be the primary goal of the credit counselor. There have even been cases where people were wrongly advised to stay away from bankruptcy, when it was the best option.
For your information, a legitimate credit counseling agency would be aware and sympathetic towards your financial crisis and charge you just enough to cover their expenses. That would be essential differentiator between a "non-profit" organization, and a non-profit organization. The good news for debtors is that there are organizations where based on individual cases all charges are waived off.
Is There A Way To Know?
Profit making non-profit organizations can be identified based on a few tip offs. Here are some.
* They charge a high fee.
* They guarantee to eliminate unsecured debt or promise that it can be paid off for pennies on the dollar.
* They advise to stop making payments to your creditors.
* They provide no guidance on how to avoid financial trouble in the future.
* They automatically pitch their (fee-based) re-payment plan without considering your case at length.
* They promise to clean up your credit report. (It takes 10 years to eliminate bankruptcy filing, and late payment and defaults stay on your record for 7 years.)
If you find out that you are a victim, have your contract scrutinized by a trusted advisor. Once confirmed, you should file a report with the local Better Business Bureau or your State’s Attorney General’s office. You can contact the Federal Trade Commission, which may not be able to fight your case since it’s a law enforcement agency, but broader action can be initiated based on complaints. There can, for example, be a move to shut down a company if many such complaints trickle in.
Attempts are being made to crack down on these unscrupulous credit counseling firms, but in the meanwhile be alert to such possibilities. Go to a company if you know someone who’s been there and got their problem resolved, or of course if you are certain that the history they boast of is for real. But the bottom line is, be aware and prepared to tackle any negative consequences.
http://www.bankruptcyhome.com/howdidthishappen.htm
