New York City Credit Counseling Rip Offs

So you know how I’ve been raving and ranting about Debt Settlement companies and how, in my humble opinion, they did absolutely nothing for you. Well, here come their cousins, the Credit Counseling services. Here’s what a working individual in Brooklyn, a disabled individual in the Bronx, or a mother working full time in Queens can expect when they call a Credit Counseling Agency to deal with their monstrous amounts of debts and the promises that it will all go away. They can expect to be told that they are going to be placed into a Debt Management Plan, whereby the individual in New York sends a lump sum check to the Credit Counseling Agency. That check, the Credit Counseling Agency says, will be used to pay the New York debtors creditors. Sounds great Here are a few things they don’t tell you, the consumer:

(1) They can’t help you when suit has been filed against you.   If a creditor doesn’t want to settle, they don’t want to settle. Thats it. No credit counseling agency can walk into court and stop that Marshall from garnishing your wages.

(2) Through something ingenious called a “Fair Share” system, creditors return to the agencies a certain percentage of the funds that were paid to them. Why in the world would that be? Because many agencies actually were funded by the very credit counseling agencies that are now “helping you” with your massive debt load. Seem a tad unfair or deceptive? Now, after mysteriously deciphering that such a fact may not look so great, creditors have instead handed out “grants” to certain credit counseling agencies, as opposed to just giving them some of the money they were paid to take from you.

(3) There is also a popular misconceptions with some of my Bankruptcy and consumer advocacy clients in New York that consumer counseling agencies are designated as not for profit agencies, so clearly they have descended from Heaven and can cause you no harm. Here is some background to show you just how common this not for profit tag had become. Between 2000 and 2003, 800 agencies applied for tax exempt status (what we call not for profit). 800!!! When the IRS finally began investigating exactly why none of these agencies thought they should make money, it found a few odd things. For one, in May 2006, the IRS announced that it had audited 63 credit counseling agencies, including some of the largest for abuse of this not for profit status. Guess what happened? As of May of 06′, the IRS had finished investigation 41 not for profit credit counseling agencies. Of those 41, the IRS revoked, proposed revocation, or otherwise terminated their tax exempt status.   I’m going to repeat that. Of 41 agencies investigated, 41 had their tax exempt status thrown out. They’re batting 1000% .

Not all of these agencies are bad. But the average debtor in New York City certainly doesn’t have the time and resources to find the good ones. And in full disclosure, I have clients that have hired me to settle their debts for them(not perform credit counseling). I tell them all that they can do this on their own and that the only reason they should hire an attorney to do this is because the case is in court or they don’t have the time to deal with all of their creditors or the case is complex and they need the assistance of an attorney.

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