There are many proposed solutions for relieving and resolving the consequences of consumer debt. One of the latest variations being advertised to help consumers is known as debt restructuring. While you may be willing to try a new method to get out from under the burden of debt, this particular strategy may be an idea that costs you even more of your money.
Is Debt Restructuring a Scam?
The company representatives promoting debt restricting services have been actively using a marketing campaign to advertise their services to desperate debtors. They call what they are doing ‘debt restructuring’ but what the program is really about is a form of debt settlement. By calling the program by another term, some agencies have been working around a loophole to avoid the regulation of the Federal Trade Commission.
The debt industry has been highly scrutinized and more measures have been put in place to protect consumers from debt related scams. However, by all accounts, the debt restructuring programs being offered are nothing new. In fact many programs are comprised of illegal tactics. The agencies offering such service will continue to do so until they are shut down by the authorities but in the meantime they will continue to rob consumers of their money and financial peace of mind.
How Debt Restructuring Is Supposed to Work
According to the claims of the agencies selling debt restructuring services, the programs often involve major lies and walking a fine line between being legal. Some of the ‘finer’ points of the program include:
Ceasing Creditor Payments
Programs for debt restructuring may insist you stop making payments to your creditors. Consumers have been told their debts will be sold off in a few months’ time and not to worry about debt-related lawsuits based on faulty information that creditors ‘rarely’ follow through on lawsuits. The reality is that charged off accounts from your creditors will damage your credit score for years to come.
Last Minute Credit Deals
Customers are often told that they can avoid a charge off from the creditors by waiting until the last minute. The debt restructuring agent will then send a letter of offer to your creditor to buy the account for double what they would receive from a debt collection firm.
Repay With Better Terms
Once the consumer has agreed to the program and signed up to enroll, they have agreed to repay 40% of your original balance to the debt purchaser once the account has been sold elsewhere. You are said to then be free of the creditor and you can eliminate your debts for a fraction of the price.
What Really Happens
When you stop paying your creditor bills, the account will be charged off your creditors books after 180 days but you are not released from the obligation of the debt. The creditor can still file a lawsuit to get their money back from you before that happens. Consumers have to face not only that threat but the constant contact from creditors looking for repayment. The restructuring program fails to help consumers through this part of the process and many become easily overwhelmed.
As for the proposal to buy the debt from your creditors, there is no guarantee there will be accepted. Many creditors will not consider this option especially to a company they are not already familiar with. Contingency-structured collection agencies often rotate assignments every couple of months.
Debt restructuring walks a fine line on legalities and for consumers not knowledgeable about the laws of debt and their consumer rights, they can easily fall into a trap where they are out money and committed to an agreement they should not be honoring.