Do Seniors Need Debt Settlement or Debt Management?

By Eric Olsen HELPS Nonprofit Law Firm

Whether you’re relaxing in front of the TV set or working in front of the computer screen, it’s hard to miss advertisements for so-called “debt settlement” and “debt management” companies. Both claim to offer relief from debt. Both like assuring they can, “get you back on your feet again.” Debt management companies want you to know there are differences between them and debt settlement companies. This is true. For senior citizens with protected income, however, the danger lies in the similarities.

Nearly all American senior citizens receive some form of income that is protected by federal law. Even when a debt collector sues a senior citizen and wins, the resulting judgment cannot be used to either garnish or levy social security retirement, most pensions, and veterans benefits. Furthermore, the average senior citizen, especially one who finds him or herself in the situation of being unable to repay debt, does not have assets worth an amount that exceed the protections granted to him by state and federal laws. In short, most senior citizens who struggle with debt don’t have anything a debt collector can take from them. They have a status that some attorneys refer to as, “judgment proof”.

So, for judgment proof senior citizens, the differences between debt settlement and debt management companies are insignificant. If a mechanic working on your car asks for plyers and you hand him plywood and pressboard, the difference between the two is not going to make any difference. He doesn’t need either one. They will make the problem worse. For many senior citizens, the differences between debt settlement and debt management are about the same. Using the wrong tools isn’t just ineffective; it compounds the problem.

Debt settlement companies are for-profit businesses. They promise to attempt to settle debts for less than what is owed. They do not have any enhanced authority to do this, but they collect their fee from the debtor’s monthly payment. While many states attempt to regulate them, debt settlement companies can be run by just about anyone. The FTC warns about debt settlement companies.

Debt management companies are typically nonprofit businesses. This allows them to advertise as charitable organizations. These companies tend to advertise low fees. Before the rise of the internet, these businesses were locally based consumer credit counseling agencies. Today, the local agencies have been swallowed up by a large, nationwide, call center based operations. Debt management companies do not settle debt but instead, attempt to lower or eliminate interest. With a nonprofit status and smaller fees, debt management companies portray themselves as set up with the debtors best interests as their goal.

Unfortunately, this is not always the case. Debt management companies receive “donations” from the same banks who hold the debt their clients make payments toward. Initially, this may seem like poetic justice. Ultimately, however, these payments create a conflict of interest. Debt management companies’ existences depend on these donations, along with the payments from their clients.

Undoubtedly, there are good people with good intentions of working at debt management services. Perhaps some debt management organizations do not inform senior citizens that their income is protected because they are ignorant of this fact. Others may elect to withhold this information because they’ve decided it is unrelated to the issue. Maybe a few do not credit the senior citizen with being able to deal with this information. Measure these excuses against the inviting services these companies offer, from customized debt management to financial counseling services, and you’ll notice something is missing.

Counseling a senior citizen by helping them understand their financial situation must include a discussion about the protected nature of their income. If this information is omitted by an agency advertising this service, one is left asking why.

Beyond their similar motivations for recruiting clients, debt settlement and management companies share one significant consequence: devastatingly high payments for senior citizens who can ill afford them. Five hundred dollars a month is burdensome for the average working person, but for a senior citizen with limited income, the net effect is dismal. Most would not choose poverty if given a choice. By failing to educate senior citizens about the protected nature of their income, debt settlement and management companies choose for them. Maybe it’s easier to choose hunger when you aren’t the one missing lunch.

For senior citizens or disabled persons receiving protected income who are currently enrolled in debt settlement or debt management, the choice to participate is just that – your choice. You have the right to educate yourself about the effectiveness of your program. More importantly, you have the right to use the laws protecting your income.

Enrollment with debt management and debt settlement companies can be terminated. You can call them and let them know you’re done. Follow up in writing. Stop any automatic payments coming out of your bank account. Don’t forget to ask for a refund of any money they are still holding for you. You’re not obligated to give a reason why you’re leaving. You could let them know you’ve learned what they neglected to tell you – your social security and retirement income are protected by federal law.

HELPS Nonprofit Law Firm is a nationwide nonprofit law firm that represents seniors in order to stop unwanted collector contact. Federal law prohibits debt collectors from calling or sending letters to a person represented by an attorney. HELPS provides this representation. We also educate lower income and poor seniors how to maintain their financial independence. We never turn away any qualified senior citizen.