How to Identify Debt Settlement Fraud

Settling your debts for a fraction of what you owe sounds tempting, but companies that promise to help you do this are often fraudulent, consumer advocacy website Debt Settlement Fraud warns. Settlement company salespeople make impossible promises to lure you in and earn a commission, and some firms collect up-front fees from you, even though the law prohibits advance payment, then fail to negotiate settlements. You might be mislead about the consequences of debt settlement on your credit bureau reports. Avoid these issues by being alert for debt settlement fraud.

Instructions

1

Ask the debt settlement company for contact information if it solicits you on the phone. Fraudulent companies refuse to give out a name and address and insist on immediately enrollment and payment for their programs. Hang up on evasive companies that initiate contact with you and seek out a debt settlement firm on your own.

2

Contact the Better Business Bureau to check the debt settlement company's rating. The BBB will list any complaints against the company and whether they were satisfactorily resolved. Call your state attorney general's office to do some additional checking if you suspect the company might be fraudulent.

3

Ask the settlement company if it is a member of the Association of Settlement Companies, a trade group that promotes good industry practices. Confirm membership on the association's website if the company claims to belong to the group. A fraudulent company will not be a trade group member and may lie about that fact.

4

Ask the settlement company about the effects of debt settlement on your credit rating. Fraudulent companies assure you that no negative effect will occur, but a July 30, 2010, article in The Washington Post warns that your credit score always goes down when you stop paying your bills to save up money for a settlement. The late and missed payments leading up to your settlement appear on your credit reports for seven years, and creditors can still call you to demand payment until a settlement agreement is reached. You continue to rack up late payment fees, and your creditor can refuse to agree to a settlement or even sue you. A legitimate settlement company is honest about these possibilities.

5

Inquire about getting a written contract before you work with a debt settlement company. Fraudulent firms will not put their terms and promises in writing in a legally binding document, and they often demand payment before they perform any services, even though they cannot legally take your money until they settle your debts, according to The Washington Post article.