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Debt Settlement Programs Fail to Reduce Debt in Most Cases, Negatively Affects Credit Ratings, and Leads to Increased Lawsuits and Collection Activities by Creditors

In an announcement by the Attorney General of Alabama, Troy King, he disclosed the results of his investigation into debt settlement practices that resulted in the permanent shutdown of a large attorney run debt settlement company in Alabama but serviced by Tim McCallan’s company, Americorp in New York..

Some of the discoveries as part of his investigation found:

  • It is misleading for an attorney to advertise that debt payment services provided through a business run by an attorney would provide superior results and would be handled in a more ethical and professional manner than debt payment services offered by a business not run by an attorney.
  • Debt Settlement is a risky practice, in which consumers stop making monthly payments to their creditors, hoping to encourage creditors to write off the debt, reclassify it as less collectible, and agree to settle for a greatly reduced payment. Instead, as the Court’s order states, “defendant’s debt settlement program failed to reduce consumers’ debt in most cases, negatively affected consumers’ credit ratings, and subjected customers to increased lawsuits and collection activities by creditors.”
  • Consumers were directed to stop paying their creditors and instead send payments to the debt settlement company which resulted in increased interest rates, late fees, further damage to their credit ratings.
  • Consumers cannot be confident payments will be sent to creditors. In the Alabama case consumers sent monthly payments to the debt settlement firm which they believed would be used to pay their debts, but which were instead used to pay the debt settlement companies massive upfront fees.
  • Debt settlement companies that advertise their services are handled by attorneys may be engaging in deceptive trade practices by representing that it was providing customers with legal services, when in fact the debt settlement company simply refers the cases to be handled by a third party that is not a law firm.
  • In the Allego Law debt settlement case the Court concluded that Allegro customers were deceived in the following ways: “(1)consumers were led to believe that Allegro Law, LLC was a law firm providing legal services, when in fact, consumers were not provided legal services; (2) consumers believed that Allegro was located in New York, when it was located in Prattville, Alabama; (3) consumers were not aware that they would be charged a fee of 16 percent of their total debt enrolled in the program and that 100 percent of their monthly bank drafts would go toward payment of that fee until the fee was paid in full; (4) consumers were deceived about the effectiveness of Allegro’s program and the certification of Allegro’s services; and (5) consumers were directed to stop making payments to creditors, which resulted in increased interest rates, late fees, further damage to their credit ratings, and additional and increased collection activities by their creditors.”

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

2 Comments

  • I just found that Allegro Law took my monthly payments for January and February and so far any of my creditors received any money, the last payments received was on December 2009, where I can go for these seu case since they
    being taking money and keep it

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