I’m employed full time and make about $45K/year as a 100% commission car salesman. My income has been practically cut in half since I purchased a home and vehicle on credit. I currently pay all of my bills on time and have FICO scores in the 700s. I have 6 credit cards nearly maxed out at just over $26,000 with the highest balance being about $15,000 (B of A AMEX 13.24%). I also hold a B of A Visa (16.24%), a Chase Visa (29.99), A Discover (13.24), an HSBC (Best Buy 0% until 6/8/13, then it goes up to 26.99%) and a GE Money (Care Credit 14.9% promotional, then up to 26.99%). Many of my rates have gone up exponentially for no other reason, to my knowledge, than holding high balances. Although I am current and have been paying on time, my current income is not enough to cover my debts. I have been selling off a lot of stuff to cover the difference.
I received a call from a gentleman named Nick Dattlio with the company Debt Free Living and he covered some options for me to reduce my current debt by defaulting, opening a escrow bank account, and negotiating settlements with the creditors and collection agencies using the World Law Group aka “World Law Debt”. He states that including all fees, I would end up paying back 40% to 60% of what I owe. I did sign a DocuSign eDocument with them (which I attached for your viewing), but I did not pay them or complete the entire follow-up process with World Law Group and their affiliates. They didn’t tell me that the amount the creditor gives up in settlement is taxable to me as income, which is what I read on the Internet.
As you can imagine and have experienced, this is a very tough experience and decision for me. I am a man who prides himself on paying his debts on time, every time and I can’t stomach the idea of destroying my credit and reputation. Nevertheless, I am plagued with a diminishing income that continues to go down as taxes, interests, and everyday living expenses go up. Not to mention the unnecessary increase in my credit card interest rates. So I am pressed to do something very soon before I am a prime candidate for full bancruptcy.
My questions to you are:
1. Are Debt Free Living and World Law Group reputable companies?
2. Is this the best strategy for my situation?
Any guidance you can provide would be greatly appreciated. I watched your story and read several of your testimonials, which led me to write you here. If nothing else, I want to commend you for what you do…it is a noble thing that you can certainly be proud of. So many people are taken advantage of in times of distress and it’s great to see that there are people like you out there fighting back.
Thanks in advance.
First, thank you very much for your kind words. I do work very hard to help people find good answers to tough questions about dealing with money troubles.
I invited you to use the free How to Get Out of Debt Calculator to review your options.
And thanks for attaching your World Law Debt enrollment contract. I’ll point out some obvious concerns on it in a moment.
I totally understand your personal aversion to not being able to pay your bills. You know I lived through those tough times myself so I can certainly feel your pain.
The issue that jumped out at me first was the reduced income and continued obligations. I often see people make decisions about how to deal with their debt based on a hope things will get better and a desire to stand by their creditors.
But I’d like for you to consider that while living up to your past obligations is a responsible thing to do, so is exercising a good strategy for moving forward in such a way that you and your family are protected from a bigger financial disaster, to come but yet unseen. If you embark on this approach, how will it allow you to build an emergency fund to protect you and your family from unexpected financial demands in the near future?
According to the agreement you sent you have $26,386 in unsecured debt and the proposed World Law Debt, debt settlement program will cost $16,647 and take an estimated 18 months.
The agreement has you paying for an initial fee, monthly banking fee, attorney monthly fee, and a bundled legal service fee. That doesn’t even include the settlement fee.
I see you live in Illinois. Illinois is a very tough state to sell debt settlement services in. In fact the state of Illinois has sued another lawyer based debt settlement company, Legal Helpers Debt Resolution. To make sure the agreement is acceptable to the tough standards that Illinois has, you may want to proactively contact the Attorney General office there and ask for some guidance.
So let’s take a look at the agreement you sent. This is not an exhaustive review but I wanted to point out some items that just jumped out at me.
World Law Debt Client Agreement
Nothing to comment on.
What caught my eye was the section on bundled legal services. It;s a big charge in this agreement and while some services are provided, they sure seem like basic or prudent steps any debt relief company would normally undertake. You would hope that before you were sold into this contract that bankruptcy would have already been explained to you and you investigated it so why charge you to do that again? Frankly I don’t see a $3,000 value they placed on this as described later in the agreement.
While the service may have been sold as having legal representation, the section about legal representation says you will not have legal representation in a court proceeding. Additionally the agreement does not include litigation costs which can be expensive. And you are agreeing to reimburse them for approved legal costs. It also does not include filing bankruptcy, which seems odd based on the big fee they are charging you for a pre-bankruptcy screening.
Let’s start with 9. You are agreeing to pay $50 to $110 an hour for additional service not included by a lawyer under this agreement. Just be aware of that. You have to approve of the services first but it is an added expense.
The settlements section is interesting. It says that lowball settlement offers of 10-20% will be sent to your creditors without “an expectation that each and every creditor will settle their indebtedness for 10-20%.” What’s the point? Sending settlement offers can trigger early legal action by some creditors and if the offers are sent early in your program, as described, if a lone creditor did accept an offer you’d have no money saved. What then?
Also it seems to me that there should be some disclosure as to how many of these lowball offers are actually accepted. They offer up no performance data in conjunction with this agreement to give you any informed consent about their performance in general for the services offered. Who knows, maybe they actually settle very little debt? We just don’t know, there is no included good faith estimate with performance data.
If you happen to chat with a creditor yourself or a creditor sends you an offer directly you will still owe them for the service they did not deliver. After all, these are your creditors but they tell you not to talk to them, “Attorney hereby advises CLIENT not to resolve their debts directly with creditors.”
First, what attorney? I have not see any specific attorney named, have you? Who is your attorney?
Second, the agreement attempts to prevent you from resolving your debts with your creditors?
The bundled legal services fees section is interesting. A moment ago I made a comment about my perception of the worth of those services. Here we learn there is a $199 setup fee and the fees are front loaded and considered earned in the first 30 to 60 days in the program even though you have not fully paid them until about month six. The “fully earned” comment makes me think they have no intention of refunding them if you drop out later.
You can click on an image below to see it larger.
Pay attention to the red arrow section. As with any approach, other than bankruptcy, where you stop paying your creditors, you may be sued and you can be sued if your creditors don’t want to play the settlement game.
Nothing to comment on.
Now on this form I do have a big issue. In my opinion this form creates an unnecessary hurdle for cancellation. It requests the form be notarized which can be a time and financial cost and unnecessary. They don’t require you get a notary to verify your enrollment, why force you to do it when you dropout?
And then there is this line I feel is just designed to scare you about the cease & desist letters. What they don’t say is that the letters are not effective with the original creditors anyway so what is the point of trying to make you believe that canceling is going to create some new liability for you in that area.
Stuck in this authorization is this line that you agree not to hold World Law Debt liable for damages.
A breakdown of your creditors. One I notice is Bank of America / American Express. In fact it’s your largest creditor. I’m not sure if they told you how difficult Bank of America / American Express can be at times.
This page finally shows you the charges in the program. What I could not find in the agreement was a description of the debt settlement fee. Is it a percentage, a flat fee, a success fee, or what? If anyone spots the description of how the settlement fee is determined, please post your observation in the comments below.
And here is where we learn this bundled legal services are going to cost you $3,000 and you’ll be charged another $1,529 for monthly attorney fees as well. Those fees do not appear to be based on the successful settlement of your debt, just attorney and legal fees.
This page shows you that by month six in the program, while you will have paid in $5,549 you will only have $1,778 saved in your escrow account for settlements. The rest will have already been taken as fees.
Global Client Services agreement.
Global Client Services agreement.
Global Client Services agreement.
Shane, I’m not telling you to not go with this company or this route if that’s what you want to do.
What I am suggesting is that you should fully investigate your options before launching into an expensive agreement.
For example, a consultation with a local bankruptcy attorney is generally free. It logically seems that would be a smart thing to do before obligating yourself to pay $3,000 for services that include a pre-bankruptcy screening. In fact you can click here to find a local bankruptcy attorney.
I’d like to see you look around a bit more before you leap. You can even use the free How to Get Out of Debt Calculator to review your options.
I’d also feel more comfortable if the agreement included a good faith estimate in writing that laid out specific expectations. A sample good faith estimate can be seen here.
I don’t know Nick Dattlio from a hole in the ground and I assume he’s a nice guy and I also assume he’s a sales person for the debt relief company. You’re in sales yourself, consider what the motivations might be to close the sale. But is this the right solution for you. I just don’t know.
Please post your responses and follow-up messages to me on this in the comments section below.