Debt Settlement or Adjustment or Validation Companies are Often Scams and Take Your Money and Let You Get Sued

You are here because you either hired one of these (almost certainly) debt settlement scam companies or you thought about it.  Here’s what we will cover in this article:

1. You do have options — actually five of them — when you are  sued
2. What these debt settlement companies typically promise
3. What these companies do in reality
4. Why you got sued
5. Can you sue the debt settlement company
6. What are some possible claims against the debt settlement company

Before we even get to what you can do against these scam companies, you have to deal with the very real lawsuit that has been filed against you.  So let’s start there.

You do have options — actually five of them — when you are  sued

We cover this in depth in other articles/videos but here are the five in summary form:

1. File bankruptcy.  This is what you are getting letters about from bankruptcy lawyers.  Yes it can work.  The same way amputating an arm for a broken finger “works” — but it is way overkill 99% of the time in my opinion.  
2. Fight the lawsuit on your own.  This costs you no money for a lawyer and you do not have a lawyer helping you.  It is the ultimate “DIY” approach.  If this is your choice, let us know because we have some free resources to help you.
3. Settle the lawsuit on your own.  Again you spend no money on an attorney and you rely on yourself to settle the case.  We do have resources to help you if you decide to choose this option.
4. Hire a lawyer to fight the lawsuit.  The downside is you pay a lawyer money but you have someone who is experienced in handling these cases to help you.
5. Hire a lawyer to settle the lawsuit.  This is the choice with the goal to settle but you get help to do so — you’ll need to compare the total cost with the lawyer compared to a do it yourself approach.  And see what else the lawyer will do for you that you might not know to do.

So the above is your set of five options.  You do need to pick one and we are happy to help you think through which is the best option when you have been sued in Alabama.  (Call us at 205-879-2447 or fill out our contact form here).

Now let’s get into the deal with these “debt settlement” companies.

What these debt settlement companies typically promise

There are variations of the scheme/scam so let’s look at these after the promise.  The promise by debt settlement companies is almost always that they can either make your debt go away for free or for very little.

Here are some names of what these companies claim to do:

1. Debt settlement
2. Similar to debt settlement but called “debt adjustment”
3. Debt validation
4. Debt purchasing and then change the terms with your creditor

Let’s look at these quickly…

Debt Settlement

You pay money to the company and let your bills default.  Then the company takes a portion of the money you have sent and settles with the collectors and creditors.  The other portion goes to fees.

Debt Adjustment

Similar to above — the idea is the company can convince your creditors to adjust their amount claimed to be owed.  Then the debt adjustment company pays that reduced amount (or a percentage) and the debt is resolved.

Debt Validation

Here the company will proudly say it does not do debt settlement.  Instead it claims to use secret federal laws to force the creditors and collectors into admitting legally they cannot collect the debt.

This is done through the Fair Debt Collection Practices Act (FDCPA) which is a legitimate and powerful law but it does not work the way these guys claim it does.

Debt Purchasing/Change Terms

Here the company says it will “buy” your debt from you.  Ironically, you pay about 45% of the debt to the company buying it.

Then they, as the supposed owner of the account, will send in a letter changing the terms and conditions of the debt.  It will now say that if you miss a payment the debt is paid off.  Weird, right?

And if anyone tries to call or collect, it is a $25,000 penalty per violation.

Then the company will threaten to sue and make the debt go away.

What these companies do in reality

They take your money.  We have clients who have paid $5,000 or $10,000 or even more to these companies.

Promises are made about your debt going away.

You will be told about letters of representation and debt validation letters.  And power of attorney letters.

But 99% of the time, nothing happens.

Except the debt is not being paid and eventually, after your credit is trashed, you will be sued.

Why you got sued

You get sued because no payments are being made.

The letters these guys send out mean nothing — it does not stop a lawsuit except in a very limited circumstance temporarily but we have not seen these companies be smart enough on the law to even get this right.

These are not lawyers and they understand a small portion of the law.  Like someone who sells medical equipment deciding he is “basically a doctor” and wants you to pay him to do surgery.

Bad idea.

Can you sue the debt settlement company

Often you can.

We look at:

• Contract which will say they are doing nothing for you.  Seriously, read the contract you signed.  It will say they are not offering legal advice.  No financial advice.  No credit repair advice.  Nothing.
• Marketing materials which will talk about how they can stop the calls, stop the debt, fix your credit, etc.
• Emails and other communications as this is similar to the marketing materials — many claims will be made.

What are some possible claims against the debt settlement company

We sue some under the tort of fraud.  This can get you compensation and punitive damages to punish the scam company.

Others we sue under CROA — Credit Repair Organization Act.  This is when they make promises about improving your credit score, etc.  This law allows for multiples of what you paid and also attorney fees.

Deceptive trade practices (under Alabama law or the law where the company is located).  These laws prohibit deceptive business practices and usually contain a provision to get damages and attorney fees.

There are other claims but the bottom line is we look to see what laws they violated and what we qualify for.  The goal is to get you compensation and punish the scammers.

Compensation means to get you back to where you should have been had they never lied to you.  This can include:

• Amount you paid for the scam services
• Cost of attorney fees to defend the collection lawsuit you are facing right now
• Mental anguish and emotional distress and finding out you were lied to and now are being sued

As mentioned above — some laws allow you to recover multiples of what you paid and/or get you punitive damages.

A word about arbitration — often the contract says you can’t sue but must go to arbitration.  We can help you figure out if that is correct or not and sometimes going to arbitration is actually an advantage.

What should you do right now?

If you live in Alabama and have a question about your rights, call us at 205-879-2447 or fill out our contact form and we’ll be happy to chat with you.

This will be a no pressure, low key type of call.  We’ll help you first understand your options and rights.

Then we will help you to take the right action whether or not that involves hiring us.  If you do this on your own, we have lots of resources we can give you to help you be successful.

We wish you only the best and look forward to talking to you soon.

John Watts