A reader sent in a tip about a claim made on the San Antonio, Texas Debt Free Angels website (debtfreeangels.com) regarding how their service helps protect a security clearance. I thought they certainly can’t be saying that. And there it is.
Debt Free Angels is a debt relief company that has appeared in this site before. You can see past Debt Free Angels articles here.
Well it didn’t take long to find the item the reader spotted.
But not only does the site indeed say “Protect Your Security Clearance” but it also says that people should avoid bankruptcy, avoid credit counseling, and avoid consolidations. They even say the service will improve credit and save 60 percent off the debt owed.
I’m not sure even where to begin with all of this. Many of these issues were address in my January 26, 2011 article about their website.
Back then I raised the issue that the company appeared to not be registered to do business in Texas. It appears the State of Texas still does not show them to be registered.
But let’s get back to those ridiculous claims on the website.
Protect Your Security Clearance
And according to the United States Air Force bankruptcy does not automatically kill a security clearance:
The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. There is no hard and fast answer here, with one exception: it never hurts to have a good reputation with your co-workers and your chain of command.
The Air Force policy concerning bankruptcy petitions filed by military members is one of strict neutrality. Air Force members have a statutory right to invoke the procedures of the Bankruptcy Act. No adverse actions may be taken against a member of the Air Force for filing a petition for bankruptcy, receiving a discharge of a debt in bankruptcy, or consolidating his debts under a Chapter 13 bankruptcy plan. Similarly, Commanders and Supervisors may not require members to seek financial counseling assistance before allowing them to file bankruptcy. The assets and protection of rights of individual creditors are matters for the Bankruptcy Court and the Air Force cannot intervene in any matter. Creditors should receive no assistance from the Air Force to collect debts and members should be treated like any individual not in military service.
Nevertheless, the underlying circumstances of a case may involve such mismanagement of personal affairs or dishonorable failure to pay just debts as to become factors that may form a basis for adverse action against the member. However, the mere filing of a petition in bankruptcy, or receiving a discharge in bankruptcy is not considered “mismanagement” or “dishonorable.” – Source
So let’s consider the counter-point that the information the Air Force provides is wrong. But do the actual facts support that position.
According to Department of Defense records people filing bankruptcy have not been stripped of their security clearance simply because the filed.
- Applicant’s financial problems commenced in 2005, and periodically occurred again over the period of several years. They were in varying degrees beyond his control, or had an indirect impact on his ability to remain current on his finances. Applicant managed to maintain most of his accounts in a current status, but over the next few years, he could not do so with the remaining accounts. There were only five delinquent accounts throughout the years, and all of them have now been discharged in bankruptcy. Applicant has demonstrated a meaningful track record of debt reduction and elimination: all of the non-SOR accounts are current, and only the five delinquent accounts were discharged in bankruptcy. There are no questions or doubts as to Applicant’s reliability, trustworthiness, and ability to protect classified information. Clearance is granted.
On February 18, 2012, Applicant obtained credit counseling on line, but no debt repayment plan was prepared.9 On March 14, 2012, having satisfied the bankruptcy means test, Applicant filed a voluntary petition for bankruptcy under Chapter 7 of the United States Bankruptcy Code. In it, he listed $14,673 in assets, and $163,645 in liabilities. All the accounts identified in the SOR, along with the creditors, collection agents, and debt purchasers connected to those accounts, were listed in the bankruptcy petition. On June 27, 2012, Applicant’s unsecured nonpriority claims, including those listed in the SOR, were discharged. All of the SOR accounts have been resolved. – Source
- Applicant has mitigated the security significance of her past due debts and bankruptcy. Clearance is granted.
Eventually, her debts began to get overwhelming. In approximately 2009 she began working with a credit counseling agency. Working with Applicant’s creditors, they were able to resolve four debts. However, one credit card company refused to work with Applicant and the agency recommended that Applicant seek legal counsel. She did so, and the attorney recommended that Applicant file for Chapter 7 bankruptcy protection and get a fresh start. – Source
- Applicant has addressed all of his older past due debts through the protection of a Chapter 7 Bankruptcy, by which those debts have been discharged. He his paying child support for a paternity he still disputes, and he has filed both his Federal and State Income Tax Returns. He is making scheduled payments to both taxing authorities. Clearance is granted. – Source
In a debt settlement position, we know that creditors are most likely going to settle accounts which are delinquent. On fact the Debt Free Angels website says this is the case.
Do I have to default on my debts to settle them?
The answer is yes, you have to be in default which normally takes about 90 to 120 days and at that time the interest and penalties stop and the debt is moved to a new department that can negotiate settlements with us or sold/transferred to a collection agency that can negotiate settlements with us. – Source
Yet delinquent debts is one of the reason security clearances are denied.
- Applicant is a 39-year-old employee of a defense contractor. He failed to provide sufficient evidence to mitigate the security concerns arising from his delinquent debts. Clearance is denied. – Source
- Applicant failed to mitigate the security concerns raised by her delinquent debts of more than $60,000. Applicant’s request for a security clearance is denied. – Source
- Applicant is a 53-year-old man who is seeking a security clearance for the first time. The evidence shows Applicant has a history of financial problems consisting of 14 delinquent debts in amounts ranging from $78 to $20,475 for a total of about $28,740. His various claims about his efforts to dispute or resolve the debts are not supported by any documentary information. Applicant did not provide sufficient evidence to mitigate the security concerns stemming from his unfavorable financial history. Clearance is denied. – Source
The point here is that there are mitigating issues that surround a security clearance. In my opinion telling consumers their debt settlement service protects a security clearance is deceptive, harmful, and uninformed.
The Debt Free Angels website makes performance claims about eliminating debt but those claims appear to be unsupported in accordance with the FTC Telemarketing Sales Rule guidance.
Their own calculator appears to make totally unsupported claims and gives the consumer the “allusion” that the Debt Free Angels service has some sort of fixed payment arrangement with creditors.
And tossed in the same bucket here I’m going to include some strange descriptions of their services.
- “Debt Settlement is when a consumer hires a 3rd Party Company (like Debt Free Angels) to legally rewrite the terms of their agreement with a creditor (like a bank, credit card company, hospital, collection firm, attorney or other creditor) because they are not able to pay their bills through no fault of their own.” – Source. I’m going to label that as not accurate. A settlement is a negotiated solution to a debt and not a modification of the original terms.
- “Debt Settlement is rapidly becoming the top method for consumers to deal with debt problems brought on by financial hardship.” – Source. Unsupported.
- “UNIQUE TO DEBT FREE ANGELS PROGRAM: When each settlement is paid in full, Debt Free Angels sends documentation to Equifax, Experian, and TransUnion that the debt has been paid in full so that your credit report can positively state that a “Zero Balance Owed.” – Source. Fails to mention delinquent account and settlement will be reflected on credit report anyway.
- “Time to become Debt Free: Our typical program has someone out of debt in about 36 months instead of 25+ years if they had continued paying the minimum. The more money you have to pay off your debt the faster we can settle and the faster you become debt free.” – Source. Since Debt Free Angels does not appear to provide performance data I’m going with this is an unsupported fact and falls under the advertising guidance of the Telemarketing Sales Rules.
Credit Report Claims
Seems like Debt Free Angels is deeply wandering into federal Credit Repair Organizations Act issues with their “better credit” claims.
And Just When You Thought It Could Not Get Weirder
I about fell out of my chair when I came across this statement on their FAQ page:
How is Debt Settlement different from Credit Counseling?
Debt settlement requires no upfront fees, unlike Credit Counseling which requires a donation of $500 plus a percent of the debt you enroll. – Source
Based on that fully uninformed and fictional statement about enrolling in credit counseling I am led to the belief that either the site is trying to be intentionally misleading and deceptive in nature or these folks just don’t flat out have a clue how the debt relief world really works.
But it doesn’t end there.
How is Debt Settlement different than Consolidated Loans?
With a consolidated loan you are taking out a loan for 100% of the amount of money that you owe to all your creditors.
In return for this lump sum to pay all your creditors off you now owe the lender that loaned you the money monthly interest on the new single payment. So you basically have only replaced one creditor with another creditor. If you could afford to pay the original creditors why would you think you are going to be able to pay your new creditor? – Source
Seriously? A debt consolidation loan can allow a qualifying consumer to repay their debt in about three to five years with a lower payment than the original debt if the debt consolidation loan has a lower interest rate. If so, the monthly payment is lower.
How is Debt Settlement different than Bankruptcy?
Debt Settlement requires no upfront fees, as opposed to bankruptcy which can cost $3000-$5000 before any work is completed! With a bankruptcy, the average debt still owed is 75-100% of the total value, plus the interest and penalties continue. With Debt Free Angels debt settlement program, you only repay 40% of the total debt and the interest and penalties stop after the accounts charge off. Debt settlement leaves no long term damage to your credit, unlike bankruptcy which stays on your credit for at least 10 years. Debt Free Angels does not report to the credit bureaus that you are in debt settlement, and there is effect on employment status. Filing for bankruptcy also takes a lot of time, paperwork, and missed work days due to attorney meetings and court hearings, plus the pre and post bankruptcy classes. – Source
Clueless. These people are totally clueless.
A consumer bankruptcy is the overall least expensive way to discharge debt within a few months. Most consumer file a chapter 7 bankruptcy which instantly stops collection calls, eliminates the debt quickly and ends or blocks lawsuits over debt. A chapter 7 bankruptcy costs nowhere near the amount they claim.
“A flat fee for a San Antonio chapter 7 is likely to be in the vicinity of $1800.00. This includes the cost of filing and the attorney’s fee.” – Source
If the claim is that’s not a representative fee, check the image below.
They also made the claim bankruptcy will stay on your credit report for ten years, and yes a chapter 7 bankruptcy will. A chapter 13 bankruptcy only stays on for seven years. But guess what else stays on your credit report for seven years, debt settlement delinquent accounts.
Then they make this odd claim that bankruptcy is going to cause you to lose days at work. The bankruptcy paperwork and mandatory credit counseling classes can be completed at home or online. The case will only require one visit to the bankruptcy hearing.
Given the fact I wrote about them in early 2011 and they had a significant amount of time to clean up their information I’m just stunned by their inaccurate, deceptive, and misleading website.
Based on what I’ve seen and reviewed above, if anyone came to me and said they were considering using the company for debt help I’d tell them to run away as fast as they could.What Planet is Debt Free Angels On? I'm Going With Uranus. by Steve Rhode