Is Your Old Advanced Fee Debt Settlement Company Secretly About to Fail? What to do.

Next month will mark the six month anniversary of the passage of the FTC telemarketing sales rules which changed the landscape in debt settlement sales.

As a consumer advocate I don’t think there is any doubt they TSR has had a fundamental and positive impact on the way debt settlement services are sold. The old advanced fee model where consumers spent most of the first six months of the program paying fees to the debt settlement company rather than settling their debts, is over. Nuked by the TSR.

The only remaining bastion of the old bad ways is the continued attorney model which is now under attack by Attorneys’ General in North Carolina and Illinois.

Unless old advanced fee companies have been able to quickly implement the lessons of settling debt quickly under the new model of ‘you don’t earn your money till you deliver the service,’ they will be hurting for income.

Before the TSR went into effect on October 27, 2010 the advanced fee companies had a big push to sell as many people as possible into the old advanced fee model. They did. But by now those front loaded fees have been mostly paid and in the next four to six weeks those legacy debt settlement companies will begin to sink or swim as the bulk of those old fees stop.

My concern is that under the old advanced fee model the companies took the bulk of their revenue in fees upfront before providing the service. Those funds were not escrowed to be taken as the services were delivered. So now, in the next few years when those clients will be demanding service, those companies will be underfunded to deliver. No new “fresh meat” will be enrolled to help continue what some called a Ponzi scheme of new sales to fund old clients services.

Debt settlement companies, when asked, are going to deny they are facing shrinking reserves or facing imminent closure so the best thing you can do is to become hypervigilant. And while I certainly don’t want to be a “the sky is falling” guy, I think you need to be on the alert for some early warning signs your company might be failing.

Warning Signs of Trouble

I would suggest you keep your eyes open for the following signs that may indicate your debt settlement company is facing tough times.

  1. Familiar staff is no longer there. Indicates a downsizing.
  2. Takes longer to get through by phone or get emails or messages answered. This can indicate a smaller staff is getting overwhelmed.
  3. Monitor the companies BBB page and look for an increase in the number of complaints. More complaints mean an underlying fundamental problem is brewing.
  4. Create a Google alert for the company name and monitor what is said about them online. Get an early warning what’s being said.
What to Do Right Now

Most importantly, right now, regardless if you think your debt settlement company may be in danger, you need to to the following:

  1. If you have settled any debt with your creditors through the company, get copies of your settlement agreements from the debt settlement company.
  2. Keep those copies in a safe place with your other important papers.
  3. If the company fails you will need those papers in the future when the creditor says they never agreed to a settlement. It will happen and only the written agreement will prove that.
  4. Make sure any funds you are paying the debt settlement company are being paid to a third-party escrow company and not the debt settlement company itself.
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For those that enrolled with success fee companies, there is less to worry about. If the company fails the escrow funds held with a third-party company in an FDIC account, are safe. If they have not settled your debt yet you can switch to a new company and pick right back up again without much of a loss.

What to Do If Your Debt Settlement Company Fails

If your debt settlement company fails and you did pay advanced fees it is unlikely you will get much, if anything refunded to you. People in this postion often only have one avenue to turn to in this situation, bankruptcy.

Bankruptcy is the only legal process that provides consumers with protection from creditors, blocks lawsuits and prevents wage garnishments. If you have paid advanced fees to a debt settlement company and you are not prepared to start all over again to save money to settle your debts, bankruptcy is a logical path to follow. You can click here to find a local bankruptcy attorney.

If you are prepared to begin the process again; avoid attorney model debt settlement companies. Those companies will only take your fees in advance again and you may face the exact same unwanted outcome as regulators crack down on them. Instead look for a success fee model as practiced by member companies of the AACC.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Damon Day - Pro Debt Coach

Steve Rhode

1 thought on “Is Your Old Advanced Fee Debt Settlement Company Secretly About to Fail? What to do.”

  1. Even though I do a lot of it already. I have a feeling that a majority of my practice this year is going to consist of helping consumers clean up the huge mess that was left when their front loaded fee debt settlement company wiped them out.


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