Consumer Debt Restructuring 101: What It is and Why You Should Avoid It

In my previous article on Debt Restructuring I mentioned it was not a magic solution. So let’s look deeper into what all of this is about.

Diving Deeper into Debt Restructuring

The minute a debt relief product can’t be easily explained in 30 seconds, the more my radar goes off. That’s exactly what happened when I started looking more closely into the debt restructuring solution that is being promoted more and more.

Now I get the fact debt marketers are looking for the next great thing to sell but before you think this is it and has a loophole you can profit from, let’s look at it closely.

The Program in a Nutshell

Claim: “Because we provide immediate relief, legal protection, and 24/7 debt management for our customers, our affiliates closing rates are more than 33% higher than with traditional or attorney based debt settlement programs.” – Source

As you read this overview you will discover why the benefits proclaimed are hollow or untrue and why selling this program is going to lead to a string of consumer and market carnage.

And let’s be honest about what this is about, even the documentation makes it clear. “Giving your agents a NEW product they can believe in will rejuvenate your sales floor. Any sales agent only performs at the top of their game when they are excited and passionate about what they are selling. Our goal is to get your agents excited about the BEST program available to their customers so your business maximizes every lead, and becomes more efficient.”

The Realities of the Consumer Debt Restructure Claims

So far the regulators and industry experts I’ve spoken to and shared what I’ve learned have said the same thing, “Oh no.”

As part of my research on this story I’ve uncovered a number of documents that expose this for what it is, an attempt to circumvent the rules and regulations to get back to collecting fees quickly.

It appears that both to engage in debt restructure and debt settlement have the same underlying premise, the debt must charge off and be sold. That period of the original holding the debt leaves the consumer exposed to the same threats of collection calls, lawsuits, wage garnishments, judgments, etc.

There is nothing in the debt restructure sales pitch which appears to deal with that problem except for the optional “Legal Package” which marketers can sell to consumers for a step additional price tag. In fact as you will see, that’s what the drive is to sell.

But the legal program appears to come with some limitations. I’ll cover those in a bit.

Debt Restructuring Nuts and Bolts

The debt restructuring program is presented that as soon as the debt charges off from the original creditor the program will send an offer to the creditor:

But here is a big issue. If the original creditor did sell the individual debt for 12 to 18 cents on the dollar (twice the rate the domination says they would have received), the fiduciary debt representative has already secured an agreement to allow the consumer to payback the debt at 40 cents on the dollar plus fees and charges.

While this may seem to eliminate the consumers debt they are in a much riskier position. Not only are they still at risk of being sued before the debt charges off but on top of potentially owing taxes on the forgiven debt they will wind up paying the alleged debt buyer 48 percent interest on the debt. There certainly might be usury problem associated with this.

Let’s just look at one part of this process and the holes in the claims.

The promotional material says that the debt restructuring program reduces the timeframe to payoff debt. Not exactly a transparent statement. It reduces the timeframe by putting the consumer in a position where they will be under collection pressure, facing lawsuits, and may have a tax consequence. There are other solutions that shed the debt quicker and with less consequences such as bankruptcy.

The statement is made that it reduces the risk of legal action but if the debt is allowed to charge off then what is to prevent the original creditor from suing. I can’t see anything.

If the debt is allowed to go delinquent and charges off, how does that reduce the amount of late pays on the credit report significantly? The debt will still show it was in collections, charged off and late through that process. That information will remain on the credit report for seven years.

So the part that potentially reduces late pays is after the debt charges off and IF an investor buys the debt. But by that time the string of late pays will have already done the damage. And since there is no guarantee a debt buyer will actually buy the debt the sting of late pays may continue into the future along with collection efforts and lawsuit risks.

As I mentioned the legal program has limitations and problems areas. First off, the program is optional and not all consumers will elect to enroll. Even if a consumer does enroll, at a steep price tag, the program has significant limitations. The cost to enroll for the legal package is said to be between $1,500 and $5,000 on top of the other fees charged the consumer.

  • According to the Debt Defense Shield (DDS) documentation it will only cover consumers for limited legal protection against creditor legal threats and actions. This package covers up to three legal events (up to three summonses or two summonses and one bankruptcy). This package includes answer to summons, in-court attorney representation, and discovery. This package does not include court fees. It is also silent about attorney travel charges and other related expenses.
  • There are limitations to what is covered. “The DDS program will respond ONLY to legal action initiated by creditors AFTER the Client’s first full monthly payment has been received. Summonses must be dated no sooner than thirty days after the posting of Client’s first full month payment by NoteWorld into Company bank account.”
  • So if the debt restructuring program is good and beneficial then why does the program include a bankruptcy component and why shouldn’t the consumer elect to pursue bankruptcy first rather than waiting for the program to fail and then pursue it?Particularly perplexing is the statement made in the defense shield agreement that this is actually a debt settlement product. Apparently even they are confused.

    And I did notice that apparently the benefits of the Debt Defense Shield program are only available once legal action has been initiated. The consumer does not appear to have access to a lawyer they can call at will do deal with these issues.

    Debt Restructuring Sales Scripts

    What you will notice as you read through this sales script is it’s all about the close, not about what is best or right for the consumer.

    The only company? With all the different marketers and agents out there with different identities, how is this statement is plausibly true for the average consumer to determine?

    The statement about removing the debt from the credit seems to be a problem with the Credit Repair Organizations Act. Oh great, something else to run afoul of.


    Notice the script does not inform the consumer their debt may be purchased at a much smaller amount and they will have to pay a substantial premium.

    The script says the debt buyer will not attempt to collect on the debt or sue them if they fail to pay the debt buyer. Deceptive?

    Just because a debt buyer may not report the debt to a credit bureau does not mean the consumer would not be required to disclose the obligation on a credit application if asked about obligations owed.


    The script does not make it clear there is no guarantee that the debts will be sold to the debt buyer. The fact that someone wants to purchase one of the debts at a premium may simply be a clue to the owner of the now bad debt they should pursue action against this debt.

    Notice the sales script specifically tells the consumer to stop paying their bills, falling behind is important, it says.

    The script tells the consumer to fall behind and then sells them a legal package costing up to $5,000. If legal action against the consumer is rare then why is the protection needed? The script doesn’t say the creditor can’t get a judgement against the consumer, it just says it may not be “quick and easy.”

    So why does the consumer need to make the monthly payment they chose when on the previous page of the script the sales representative said the debt buyer would not attempt to collect on the debt. Why wouldn’t a consumer chose to pay $0?

    The script says the consumer will “only have one monthly payment” but for all debts the debt buyer is unsuccessful in purchasing or the consumer is being sued over the consumer will have multiple payments. The one payment statement is deceptive and untrue.


    The bullets in your gun… These are not the words used by consumer advocates or counselors with a fiduciary duty who are operating in the best interest of the consumer. These are rebuttals to use AGAINST the consumer to “keep your sale moving.”

    The script even says if you tell the consumer the wrong thing, keep going. “Do not hesitate, remember that your client does not know what you are supposed to say, so if you make a mistake just roll with the punches and keep talking.”

    ASSUME THE SALE and GO FOR THE CLOSE!!!! I’m not sure what more I can say about that. The statement alone is damning enough.


    The comparison with debt settlement is unrealistic. There is no reason why anyone in debt settlement needs to fall behind that far. The only reason, the wrong consumers were sold into an extended debt settlement solution. Not all companies that engage in debt settlement adopt that approach. In fact here is one that routinely settles the debt even before it charges off. That’s faster than the alleged debt buyer approach.

    “We are the only company that offers true attorney representation,” they say. That’s simply not true.

    The script again obfuscates the true cost to the consumer. Earlier we learned the debt would be hopefully purchased for 20% and here the consumer is told it will cost them 55% but it appears that statement omits monthly fees, legal protection package and fees from NoteWorld. The fee disclosure seems deceptive and unfair to me.

    The statement is made the program is 100% FTC complaint. There are already enough holes in this program and issue with other state and federal statutes that a compliance statement like that should not be made.

    The consumer is told again they must fall behind on their debts. The rebuttal is the consumer does not need to fear being sued by their creditor because they will have attorney representation and guaranteed results. What results are guaranteed?

    The statement about credit is just flat out untrue. Credit is important in many different ways, not just when making major investments. It impacts your cost of ongoing obligations and things like insurance rates. A failure to pay your bills can also impact a security clearance.


    The focus of the script is to guide the consumer to the close, not to help them make the best decision possible. Sadly, consumers will believe they are being counseling and best advised when they get this pitch but even the script says what the true intention is, “This can reduce the average amount of time it takes you to close one transaction and move on to the next, increasing your sales and productivity.”

    Debt Buyers Program Agreement

    Once the consumer finally sees the debt buyers program agreement, they will be asked to sign, the guarantees in the sales script go out the window.

    • Doesn’t protect client but might protect client. “Engaging the creditor:
      • can help remove Client’s file from creditor’s collections and legal departments
      • can decrease creditor’s legal threats and collection pressures on Client
    • Company does NOT make any implicit or explicit guarantees that Client’s debt will be bought by a third party debt buyer.” – Source

    So by entering this agreement the consumer is still exposed to collection calls, collection activity, lawsuits, legal threats, wage garnishments, tax issue from forgiven debt, bad credit and a debt buyer may not buy the debt at all.

    Where did the sales script guarantees go? And speaking of that, how does the statement in the sales script that the consumer will receive “guaranteed results” deal with statements made in other related documents that state saying that would be fraudulent?

    Debt Restructuring Sales Script Neglects to Mention

    The sales script neglects to mention the program will not accept all debts.

    Debt Restructuring Sales Scripts Skip Refund Policy

    This debt relief program looks like it clearly does not offer a full refund policy which will lead to unhappy consumers and complaints.

    Marketers Told It’s Better Than Legal and FTC Compliant

    Marketers appear to be sold a bill of good that this approach somehow skirts laws and regulations designed to protect indebted consumers from opportunistic profiteering. It relies on semantics and slippery definitions but what it can’t escape is that marketers are going to wind up selling this much like debt settlement and that’s what consumers are going to hear.

    The program looks as if it is intended to find a loophole and exploit it rather than be fully complaint.

    Even if we look at the tricky language used:

    So let’s run with that. So it appears the program is attempting to make every claim it is not settlement because it alters the debt but by doing that it runs into trouble with a large number of state debt adjusting and prorating laws. The program focusses only on making sure it tries to be FTC complaint but makes no mention of all the state laws and UDMSA.

    But the same documentation on the program says the FTC is targeting efforts to skirt the laws. But the reliance this program is complaint based on word semantics, alteration versus settlement, is simply yet another loophole attempt.

    In response to new policies and regulations, debt settlement companies search for loopholes
    in order to adapt to new business realities. However, since the FTC anticipates these loophole seekers, it has come down with very tough guidelines and is now cracking down on them hard, among them especially the “attorney model” big firms who try to circumvent the FTC through artificial face to face contracts.

    And what will prevent the FTC from taking similar action against this program?

    Debt Restructuring Marketer Compensation

    The affiliate will earn a percentage of the “facilitation fee” which is 15% of the debt. – Source

    The compensation calculator shows agents will make a lot of money per sale. This will open the floodgates for abuse again.

    Click image for larger view.

    NoteWorld in the Thick of It.

    Throughout the documentation I’ve seen the claims are made again and again that this program is NoteWorld approved. For those that are unaware, NoteWorld is a third party escrow company that has a lot to lose and faces getting sucked into actions against marketers of this program as they have been against marketers of debt settlement program they worked with.

    In fact the documentation on this program goes so far as to assign program underwriting to NoteWorld, “Easy Underwriting Policy If NoteWorld Accepts it, we take it.” – Source

    And then this statement from NoteWorld is provided to affiliates to show them NoteWorld is onboard.

    Cyrus Global All Over Pushing This

    All of the marketing material I’ve covered here was distributed by Cyrus Global, a company I’ve covered before, see here.

    Ironically, this material that proclaims why debt restructure is different than debt settlement was actually distributed by someone identified as Greg Jones, “Debt Settlement Rep” from Cyrus Global.

    So it is debt settlement then or is even the national sales manager for the product confused what it ideally is?

    Greg describes himself as the “VP National affiliate accounts, Debt Restructure” and says he is, “Revolutionizing the debt settlement industry. I am currently working with the one and only US company that can purchase a clients unsecured debt upfront and provide them with immediate relief.” – Source

    As one person said to me during my investigation, “The official picture of Greg on his business profile with the baseball cap on backwards is not a big confidence booster.”

    Debt Restructuring Marketers Encouraged to Buy Debt

    Marketers are enticed by big potential profits available in this program if they buy the debt of consumers they are supposed to serve in a fiduciary capacity. I can’t see how this does not run afoul of the provisions of the UDMSA that prevent this.

    In fact here is what the UDMSA says:

    If a provider furnishes debt-management services to an individual, the provider may not, directly or indirectly:

    (1) purchase a debt or obligation of the individual;

    (2) receive from or on behalf of the individual:
    (A) a promissory note or other negotiable instrument other than a check or a demand draft; or
    (B) a post-dated check or demand draft;

    (3) lend money or provide credit to the individual, except as a deferral of a settlement fee at no additional expense to the individual

    (7) charge the individual for or provide credit or other insurance, coupons for goods or services, membership in a club, access to computers or the Internet, or any other matter not directly related to debt-management services or educational services concerning personal finance; – Source

    Debt Restructuring Complaints Will Lead to Legal Action

    We know the number one cause of legal and regulator action against debt relief companies is consumer complaints. And this program does nothing to mitigate collection calls and potential for lawsuits before charge off. It even makes a bankruptcy allowance for consumers that will not complete the program. So to me it clearly appears there will be many unhappy consumers that will feel the program is not working for them and will complain.

    While the video below was directed at debt settlement providers in 2011, if you listen to Assistant Attorney General Weaver you will hear how consumer complaints drive Attorney General action. You can start at 6:28 to hear about AG cooperative efforts.


    Affiliates and agents should expect to be personally named in legal actions involving those consumers. This program comes on the heals of a number of debt settlement cases that have show that to be the case of attorneys pursuing these claims. If you don’t believe me, watch this.

    This program is going to result in a lot of debt relief companies and marketers facing Attorney General action, local lawsuits, and governmental scrutiny.


    Calling a pig a bird doesn’t change anything. This debt restructure approach is filled with holes and liabilities for marketers.

    It appears that one crutch of the program is to collect “Debt Restructure” fees proportionally when the debt restructure agreement is executed. They claim no upfront fee are collected for that part of the approach. This certainly appears to avoid the advanced fee issue under the FTC Telemarketing Sales Rules but that’s nothing different than what the compliant debt settlement companies are offering.

    The pressure point here that marketers will be financially motivated to push will be the very expensive legal package which is said to be optional. By selling the legal package the affiliate will be advanced commissions and receive large commissions before the client has resolved their debt.

    In addition it appears the consumer money paid into the NoteWorld account will be paid out first to legal package fees before money is escrowed for hopeful debt purchases. “How DDS Plan Reflects on Monthly Payments: We do not stagger monthly payments. Trust account monthly payments start after the completion of DDS Plan Fee payments.” – Source

    The benefits of this program are based on a lot of hopeful statements. The claim is that the cost of the legal package will be refunded when the consumer completes the program, but based on historical success rates of debt repayment programs, only 10 to 20 percent of people complete using that approach. A consumer that drops out is not entitled to a refund of legal fees paid in advance. So the legal package fees fuel the marketing.

    Consumers that participate in this approach will still face:

    • continued collection calls from the original creditor and possibly the debt buyer if they fail to pay;
    • lawsuits from the original creditor before charge off;
    • lawsuits from the debt buyer if they don’t pay;
    • no guarantee their debt will be purchased by a debt buyer at all;
    • an incomplete solution if some or none of the debt is available to be purchased or purchased by a debt buyer;
    • no solution if the original creditor decides to hold and collect on the debt after charge off;
    • the real possibility of lawsuits, judgments, and wage garnishments;
    • possible income tax consequence from the forgiveness of the charged off debt;
    • participating in illegal credit repair by removing any accurate but negative information from their credit reports;
    • no independent financial analysis by the sales representative regarding best overall solutions for their debt problem. The goal is to make the sale;
    • monthly fees for software and NoteWorld service that are not refundable;
    • a violation of fiduciary duty and UDMSA guidelines when the marketer is also the debt buyer;
    • a weak refund policy of no refunds after 60 days; and,
    • no data transparency. There appears to be no data regarding how many consumers have successfully completed the program by resolving all debts with debt buyers, how many have enrolled, failure rates, etc. Without this data consumers can not make an educate and informed decision.

    This program will get lapped up by marketers hungry for the next big debt sales product. The reality though is that it is so full of illogical holes that this will decompose into a liability festival for marketers and participating companies.

    Regulators and legislators that were already upset and angry about the marketing abuse promulgated with aggressive debt settlement sales, will be poised to strike hard when this end run approach hits their desks through consumer complaints.

    If debt restructure was a better product for consumers there would be no need to sell a legal package designed to provide some hopeful benefit to the consumer when the creditor enforces their legal rights. This is not a cooperative approach with the creditor, this is the same “don’t pay your debts” and we’ll hope to get it resolved later approach that bad debt settlement was pushing.

    Complaint debt settlement companies will be the ones to suffer. The debt settlement industry of no advanced fee companies is just starting to emerge. When debt restructuring rolls out it will paint the entire debt relief industry with a fresh new stink.

    When this blows up, and it will, it will harm the reputations of all compliant debt relief providers, will most likely lead to new rules and regulations to limit consumer options and the good debt relief companies will face more liability as litigators go hunting for bear.

    The only winners in this approach will be the marketers that pull the strings behind the scenes and who will push this program hard till it gets slammed. They will pocket big money and walk away. This program is perfect for organized crime to get behind and fund marketing efforts, and they will.

    This is certainly not the end of this unfortunate story. It’s going to wind up with harmed consumers, sued affiliates, unpaid marketers, and a whole bunch of new legislative attention.

    Source Documents Used for this Article


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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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7 thoughts on “Consumer Debt Restructuring 101: What It is and Why You Should Avoid It”

  1. Steve, kudos for an outstanding piece. I’m going to
    step in here and speak as plainly as possible. I’ve been around this industry
    for 14 years and seen dozens of different variations on debt relief services.
    This one is a scam from top to bottom. There is no other word for it.
    The sales pitch is designed to part consumers
    from what little money they have left, not to help them get out of debt, and the
    people who assembled this toxic sludge of “services” and called it “debt
    restructuring” are just trying to apply lipstick to the pig that is
    attorney-model debt settlement. Not only does the presentation misrepresent the
    likely outcome, there is NO possible way in which this plan could work for the
    average consumer. It takes SIX MONTHS for a credit card account to move from the
    point of initial default to charge-off status, where supposedly it will
    magically get purchased away from the original creditor. (Not!) For the consumer
    on the receiving end of the collection centers operated by the major banks, that
    six months is a black hole of despair, confusion, and uncertainty — unless they
    are guided by someone who actually cares about them and provides the correct
    advice on how to speak with their creditors. There is nothing at all in this
    program that addresses that need. The advice is essentially to just ignore the
    creditors until charge-off. What horrifically bad advice if you owe significant
    balances to certain early-attack creditors. And once the big boys (Bank of
    America, Chase, Citibank, Capital One, etc.) catch on to the “footprint” of
    people using this so-called system, collection tactics will shift to early
    placement to in-state legal firms. Client after client will get steamrolled into
    bankruptcy by the lawsuits. This approach is doomed to fail for the vast majority of people who try it.


    If you are a consumer in debt and you’re reading
    this, please don’t be tempted by the sales pitch for this program. Go see an
    attorney first and discuss your options.

      • You raised an excellent point in your followup article that I missed in my article, when you said:

        “There are three major problems with the assumption that offers to purchase debt accounts for double the going rate will be accepted by creditors with any consistency or regularity (which would be required in order for the program claims to be true). First of all, most creditors do NOT immediately sell their charge-off paper. In fact, they assign the accounts to contingency-based collection agencies, often on rotating assignments for 3-6 months. Therefore a “quick sale” is by no means assured even with those creditors who do tend to sell their accounts sooner rather than later. Second, there are certain major creditors that NEVER sell their accounts to debt purchasers under any circumstances. Nearly every client has a card from one of these creditors, so the program fails right out of the gate for people who have such accounts. Third, the purchase offers will quickly stamp a clear footprint on the technique used in this program. Such offers will quickly be coded and recognized for what they are – an offer coming from a debt restructuring firm. This will lead to retaliation by some of the major creditors, in the form of early-attack litigation against consumers using this system.”

  2. Extensive research and time to getting this out Steve.  Thank you and the tipster for getting this out.  Consumers need to know the new ways they will be targeted and hopefully new agents and or companies can see this for what it is.
    Conceptually it sounds interesting even great to buy the debt for 40% and have the consumers pay that back over a shorter period of time, but based on many things here it will not be long before some action will affect this whole concept.
    There will always be a new way to offer big commissions by getting money from consumers for a HUGE marketing plan, the only cencern is the true interest for the consumer.  Does anyone ever put themselves in the consumers shoes?
    Or better yet what happened to the “Golden Rule”…..Maybe it got lost and became the GOLD rule.
    It will certainly be interesting as this industry continues to move forward what will happen with all the agencies cracking down on bad actors.

  3. FROM: http://business.ftc.gov/documents/bus72-debt-relief-services-telemarketing-sales-rule-guide-business#covered


    Who’s Covered by the New Rule

    The new Rule applies
    to for-profit sellers of debt relief services and telemarketers for debt relief
    companies. The new Rule defines a “debt
    relief service” as a program that claims directly,
    or implies, that it can renegotiate, settle, or in some way change the terms of
    a person’s debt to an unsecured creditor or debt collector. That includes
    reducing the balance, interest rates or fees a person owes. The TSR
    defines “telemarketing” as a “plan, program, or campaign . . . to induce the
    purchase of goods or services” involving more than one interstate telephone
    call. Most of the provisions of the TSR apply to sellers and telemarketers, so
    the terms “company” and “provider” in this Guide refer to both. In addition,
    certain parts of the Rule apply to those who provide substantial assistance or
    support to sellers or telemarketers.

    • I keep going back to the simple fact that the only thing that scares these scammers is enforcement! Until there is any- who knows? I got word that the hot company right now is Golden Financial from a good friend this week- It appears they are either selling World Law or doing the back end- He told me affiliates are lining up. When World gets shut down their affiliates will have nothing- Why dont they just go sell something else? Why can’t the FTC or CFPB simply hand out cease & desists? As time goes, settlement will just have a worse name because of all these guys- Huge up front fees & NO guarantees- Great.They are breaking the law

      • Is Cyrus Global a major sponsor of the upcoming MStars Evolution conference? I want to say I remember that being the case. Anybody?

        If they are sponsoring, I wonder if this is what somebody who was posting regularly months back in hype of the Evolution thing saying its the future of debt relief was referring to.

        If thats the case, there is no future.

        Epic Fail.


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