I regularly speak with people across the county about their debt problems in a free debt consultation. Last week I spoke with a couple who was very concerned that they had made the wrong decision about what to do with their debt. Their question was this:
I signed a contract with a debt settlement company. I am now having second thoughts. Can you tell me if this was a mistake?

I congratulated this couple on taking steps to get their debt under control. One of the most difficult things for people to do is to look for help with their debt. But be careful, because not all debt relief options are created equally. This couple forwarded a copy of the contract they signed for a debt settlement option with a debt settlement company, which is NOT the same thing as a debt settlement law firm. I found a number of items that caused concerned me in the contract.

First of all, this debt settlement company charged them a $900.00 retainer fee, in addition to the 15% overall fee charged for the debt settlement process. I asked the couple what that $900.00 retainer fee got them. Nothing! That’s right. They were scheduled to hand over close to $1,000.00, but would receive no benefit as a result. Shouldn’t your hard-earned money get you something?

But wait, there’s more. This debt settlement company also proposed to charge their client a “legal administrative fee” of $79.00 per month. I reviewed the contact and for the life of me could not figure out what this fee covered. The couple had no idea either. But over the life of their 3-year contract, they would pay $2,844.00 for this administrative fee. Again, this is in addition to the total fee equal to 15% of the total debt owed by this couple. That’s nearly $3,000.00 that they could put towards settlement of their debts. Instead, the money would go towards ominous administrative fees. Next we discussed what would happen if they got sued.

Non-payment of your credit card debt can lead to a lawsuit being filed against you. This couple needed to know what they could expect if they were sued. The contract with the debt settlement company mentioned that the company would review the pleadings and engage in settlement discussions with the creditor. But it didn’t mention actual representation in the lawsuit. This concerned the couple, since they had no idea what they would do if they actually had to fight a lawsuit filed against them. I explained to them that there is no way of predicting whether or not a particular creditor would file a lawsuit, but the possibility exists. They were troubled to know that the contract they signed was not very clear as to what role the debt settlement company would play in the event they were sued.

The debt settlement company would not be able to represent the couple in a lawsuit if they were sued. A licensed attorney could. Seeking the assistance of an experienced attorney for their debt settlement would give them the added protection of having an attorney ready to step in to assist if they were sued.

This couple had a number of doubts that ultimately led them to contact the debt settlement company to cancel the contract they signed with them. I gave them the hard answers they needed to hear. In the end, they just needed more information. They have now been directed to discuss their situation with a couple of attorneys in their state. I’m not sure whether they will be pursuing a debt settlement or a bankruptcy. But what matters most is that they are now looking at all available options to determine what makes the most sense for their situation. I am pretty sure the debt settlement company they originally spoke with isn’t too happy with this situation. After all, they are potentially losing out on a fee. But these hard working people deserve to know their debt relief options.

Daniel R. Gamez, an attorney focusing exclusively in debt settlement, is licensed to practice in all state and federal courts in California and Texas. Mr. Gamez owns and operates the Gamez Law Firm in La Jolla, CA. For more information, please contact Daniel Gamez at 858-217-5051, daniel@gamezlawfirm.com or visit gamezlawfirm.com.