The other day, a husband and wife came to my office holding a Summons and Complaint. It was a lawsuit for collection of a credit card debt that they owed. They were not expecting this lawsuit as they had signed up with a debt relief agency about 6 months ago.
This couple was paying the debt relief agency a certain amount of money monthly which, they thought, would be used to take care of their credit card bills. As they had been on time and up-to-date in their payments to the debt relief agency, they had thought that their credit card bills were also being taken cared of and they did not worry about those bills. Hence, the lawsuit against them by the credit card company was a surprise.
Unfortunately, for this couple, they did not understand or it was not properly explained to them how this debt relief agency works. They had been receiving mailers and seen TV ads about these debt relief services with promises to lower their monthly payments, reduce their interest rates and make them debt-free. Drowning in debt they had a hard time paying, this couple was naturally attracted to these offers.
They signed up for the debt relief service. The arrangement was that the couple would pay about $600 per month to the debt relief service. They thought that their monthly payment to the debt relief service would be immediately used to pay their monthly bills to the creditors. They were wrong.
Debtors have to understand that the goal of these debt relief services is to obtain a debt settlement for you in an amount less than what you owe. For example, if you owe $10,000 the goal of these debt relief services is to have you end up paying, maybe around $6,000. Likewise, it may also be to lower the interest rate to an amount that the debtor can reasonably pay off in a shorter period of time rather than just paying interest without making any dent on the principal.
Creditors obviously will not just lay down to debtors who demand for lower payments. This is especially true if debtors are paying off their obligations diligently. Creditors would not mind you paying off just your interest monthly and continue doing so indefinitely. The way for debtors to put the creditors in a position to negotiate is when debtors fall behind in their monthly payments. Once a debtor is behind in payments, creditors may then be more willing to negotiate terms.
The husband and wife were asked by debt relief services to give them their monthly payments of $600. The money paid by the debtor to the debt relief agency was then supposed to be accumulated over a period of time, say, about 18 to 36 months. Once, there was enough money accumulated, the debt relief agency would then negotiate with the creditor to make a cash pay-off for the debt in return for a certain percent discount.
Unfortunately for this couple, they did not understand that creditors are under no obligation to bow to the demands of a debt relief agency. Just because a debtor signs up with a debt relief agency does not necessarily mean that creditors will now lower their payments. In this case, the debt relief agency did not even get to do anything for this couple. All they did for those 6 months was collect their fees. No negotiation with the creditors was even initiated as they were still trying to accumulate money to pay-off the debts. The worse thing is that this couple is now finding it impossible to have the debt relief agency return the money accumulated for them the past 6 months. This is on top of the fact that they are now facing a collection lawsuit in court from the creditor.
The lesson to be learned is to do your homework. Do not fall for sales ads which may or may not have full disclosure. Don’t trust companies simply because they promise you debt relief. Understand what it is they are doing for you and what your obligations are.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
