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Debt settlement companies ordered to cease activities

The attorney general of Florida and the Federal Trade Commission have been able to obtain a court order that requires 11 companies to immediately cease all of their debt settlement activities in the state. The companies are accused of misleading consumers and violating several federal and state regulations. According to the complaint, the companies collected large amounts from consumers each month but failed to apply these sums to their outstanding credit card balances.

Debt settlement firms claim that they are able to convince credit card companies to settle overdue accounts for pennies on the dollar, but they do not always explain to consumers how this can be achieved. These companies often collect payments from consumers each month and place them into escrow accounts, and they then wait until credit card balances are seriously delinquent before offering reduced amounts to settle outstanding debts in full.

Consumer advocates say that this strategy is very risky for borrowers. Additional borrowing can be extremely difficult when delinquencies have caused credit scores to plummet, and there is no guarantee that credit card companies will accept debt settlement offers. Reports suggest that some of the customers of the 11 companies covered by the injunction were sued by their creditors or pursued personal bankruptcies to escape unmanageable financial situations.

Attorneys with debt relief experience have a fiduciary relationship with their clients. This means that they must be completely candid and forthcoming when discussing the differences among debt settlement, credit counseling and personal bankruptcy, and they must also explain the possible consequences of pursuing these options. Attorneys could also inform borrowers who have pursued debt settlement that a Chapter 7 or Chapter 13 filing offers the chance of a fresh financial start and puts an end to harassing calls from bill collectors.

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