Do You Think the Attorney Model of Debt Settlement is Still a Loophole? – Chris

“Hey Steve,

I currently work in the Debt Relief Industry for a Company who provides Debt Management, Debt Settlement, and Bankruptcy.

As of right now our Company provides an Attorney Model Debt Settlement program. We charge 15% of the enrolled debt which is spread out evenly over the entire payment plan. We also conduct a face to face consultation with all pontential clients before enrollment into the program.

In our agreement we also have what we call “Bankruptcy Protection”, which basically means that if the client is unable to achieve success with the settlement process we are able to take them through a bankruptcy @ no additional cost.

I have been in the industry for 5 years and have sold many models of debt settlement; some good and some bad. The current model we provide seems extremely compliant and I feel good enrolling consumers into a process where they can succeed. By the way, I visit your site very often and I think you are a great voice in our industry!

My question to you is: Do you think based upon what I’ve told you that an Attorney model is still a “loophole”? Our company may be converting to a Non-Attorney Model with absolutely no advanced fee(s) but, comparing the two it seems like our current model is much better for the consumer. What do you think?


Dear Chris,

I think there is no advantage for consumers to pay any money upfront under current regulations, no matter how evenly it is spread out.

It’s also interesting that you are currently conducting a face-to-face meeting, which appears to be nothing more than trying to get around the FTC telemarketing sales rules. So it might be argued that by fact you are currently loopholing to charge the advanced fees.

I’ve no idea who the company is you are with so my next statement is not directed towards you specifically. In contracts I’ve seen from attorney model firms that have a “bankruptcy option”, generally the consumer pays significantly more for the bankruptcy services. One case I remember the attorney model debt settlement company was holding back $3,000 of the fees paid for bankruptcy but the street value of the bankruptcy was less than $2,000. The consumer would have been better off getting refund for services not rendered and paying for bankruptcy themselves.

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In my experience the underlying issue with the attorney model firms is the high fees when combined with the other heaped on charges each month, the lack of a refund policy, the incentive to sell rather than consult to find the most appropriate solution, the overcharging for related services, and the lack of real in-court representation for consumers that are sued.

Don’t get me wrong. I am not against debt settlement performed by a local attorney, for someone that lives in their state, that collects the money from the consumers, who holds the funds in their own legally regulated trust fund, and who must account for the work delivered and refund the unused portions to the consumer.

I think the path you are on with the change will wind up being a win-win for both you and the consumer.

Ultimately the best solution is going to be one that is fair and balanced. If you promise to deliver a service, and can’t or don’t then just refund the fees paid. The model in which companies try to make the claim they are in fact a law firm and can charge the money up front and not offer refunds is academically plausible but at the end of the day many people are left with no results and poorer.

Finally, your company might be the shinning beacon out there in your current attorney model but others have so abused it that regardless the quality of performance you deliver, the model is tarnished.

Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach

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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.
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