An Example of New York Debt Settlement Company charging absurd fees

By: Daniel Gershburg, Esq.

This past weekend I was interviewed by News 12 New York about a Brooklyn debt settlement company who was charging some strange fees to its clients.  What were the fees?  Well lets say someone comes in with about $30,000 in credit card debt.  And lets say this person makes $40,000 a year.  This debt settlement company, like many others, charges, up front, 15% of the total debt amount as their first fee.  That means this woman had to pay $4500 for the privilege of hiring this company to settle her debts.  So she paid more than 10% of her gross annual salary to a company so that a company could try and call her collectors because she didn’t have enough money to pay them.  Not normal.

Now lets move on to the next fee.  A fee of $750/month for the first 2 months for “Processing and Administrative expenses”.  So now were at about $6000 and we havent gotten anything in return yet.  Oh by the way, after the first 3 months, she’s still paying processing fees of about $150 a month.  I don’t know what these people are processing at this debt settlement place in Brooklyn, but its pretty expensive.  

So now you’re up to about 6k and fees and its been a few months…what do you get in return?  Well…based on the time tested principle of stupidity, these Brooklyn debt settlement companies advise you that they are going to put your money aside until you have enough in a reserve fund for them to settle the accounts.  What they don’t tell you is that with the fees these people are charging (which are monthly) it will take years before you have enough to have the companies even entertain settlement.  Moreover, during that period of time the debt settlement company in New York is still charging you their monthly fee.  Oh by the way, creditors also tend to sue if they havent received payments in a particular period of time.  What does your debt settlement company do if you get sued?  Nothing.  Read it again.  Nothing.  They’re not attorneys and if you read the fine print really well you’ll notice that they wont represent you in any court action brought against you.

So lets review this whole process:  You pay thousands and thousands of dollars to a company for the benefit of using them to settle your debts, which you don’t have enough money to pay.  You’re told not to pay your creditors, and to put monthly money aside so that you have a nice lump sum to settle with.  If you get sued…too bad.  If the creditor doesn’t accept the offer from the debt settlement company…too bad.  If you can’t pay your monthly fees to the company…too bad.  

Heres what you get in return:  No guarantee of ever settling any of these debts.  Even if you do settle, you will have likely paid more to to the New York debt settlement company than you would have paid to the original creditor.  You’ll likely be sued, your wages can be garnished and your bank accounts may be frozen.  

Whats my advice?  Negotiate on your own.  Do internet research surrounding do not call letters.  Speak to an attorney who actually knows that he/she is doing.  Do some research on this company.  Save yourself the money and hassle with dealing with people that promise you nothing in exchange for thousands.  

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy