Question:
Dear Steve,
I received a letter in the mail from the credit association that I qualified to cut my debt in half with their program.
I called the number and spoke with someone. I asked A LOT of questions. Bottom line, I ended up signing an agreement with them that they would cut my $20,000 to about $9,000 (rounded numbers).
No more interest accruing, my cards would be closed for further use, and I would pay into an escrow account $344 every month (or more if I wanted), and at the end of my 42 months, or paid in full agreement, they would send the money in a lump sum to my creditors, and I’d be debt-free.
They told me upfront that they had a fee, so my total payment would be about $14,000 (this was the maximum amount of “debt” I would now have, and it was factored into my $344 monthly payment).
They did say it would show on my credit report my accounts weren’t being paid until the lump sum was given to the creditors, and they then would contact the credit bureau to let them know I paid it off.
My question is, how do I know if I signed up with a legitimate company.
I looked on BBB, and there are quite a few complaints about credit scores being dropped, and their debt wasn’t shown as being paid off on the report when they settled with the company.
However, it seems a lot of these complaints are happening within two months of the settlements, therefore making it seem like they expected their debt to be wiped off the next day.
Worden & Associates did inform me it could take up to 30 days after settlement for the creditors to report the debt paid off and then another couple weeks to be shown on my credit report.
Also, every complaint on BBB has been answered and settled. I’m 26, I own a house, my car, and I have three jobs. I don’t want to be royally screwed for the next 30 years by deciding this at a young age, but I also have a lot of debt, more than I would like to at my age.
Is there any way you can look into this for me and let me know how legitimate it seems to you or if anyone else has had issues or good or bad reviews? I appreciate any help you can provide.
Answer:
Dear Friend,
I strongly advise you to read the client agreement you signed. Unfortunately, there is often a big difference between a debt relief salesperson’s messaging and the agreement you signed.
What you described sounds like a potential advance fee debt settlement product. If I’m correct, some of the statements you’ve made would not be true.
A typical debt settlement solution has you intentionally stop making payments to your creditors in hopes they will eventually settle. But they can also sue you, and your delinquent payment status will remain on your credit reports for up to seven years.
If an agreement is reached, the amount of debt forgiven is reported as a bad debt to the credit bureaus, and you can receive a 1099-C tax statement to pay income tax on the forgiven amount.
While the part you do pay will appear on your credit report, the amount written off as a loss will be there as well.
If you were in a difficult financial spot, a Chapter 7 bankruptcy would eliminate your debt in about 100 days for a total cost of $2,000. That is a bit different than 42 months and $14,000.
Again, the client agreement is where to go for clarity on what you agreed to. I bet what you will find buried in that agreement is information about the consequences of settling.
Settling your debt is a tool that can be used. Unfortunately, not every creditor is suitable for settlement. As a result, not every debt gets settled.
If you want more transparency about the results the company obtains, you should ask them for the information the Federal Trade Commission says you should receive. See the section “Information You Must Disclose to Customers” in this document.
As far as Worden & Associates being legitimate, that’s always a problematic question. It’s like asking if a company is a scam. Those words can mean different things to different people.
I would recommend that anyone considering using such a company read the following free guides.
- The Ultimate Consumer Guide to Checking Out a Debt Relief Company Before You Sign On the Line
- 10 Must Do Steps to Find the Best Counseling or Settlement Company for You
- How to Check Out a Business or Company to Avoid Getting Scammed or Ripped Off
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