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The Hidden Trap of Debt Settlement

How Debt Settlement Companies Affect Senior Citizens

Mary was 71. Her only income was $1100 from social security and a $200 pension. Her rent was nearly $600 per month. She had been eating nothing but peanuts for breakfast, lunch and dinner for two weeks.

Bill and Ann had been married for nearly 50 years.  Despite a lifetime of hard work, they survived on a combined social security incomes of $1600 per month. When Bill asked Ann why she was feeling ill so often, she confessed she had been taking only half of her prescribed medicines.  There simply was not enough money left to pay for the full dose.

Charlene had an income of $900 per month from social security. She was on subsidized housing, but after rent and old bills, she only had $200 left for food and utilities.

These senior citizens all had one thing in common: they were enrolled with debt settlement companies.  In an attempt to pay old debt, they had sought for solutions and found these companies on the internet.  They also shared a lack of a crucial piece of information: their incomes were protected from collection by federal law.  The debt settlement companies had not advised them of this fact.  Nobody told them that protected income did not have to be used to pay for old bills.  Instead, the debt settlement companies pushed contracts with payment amounts that took far too much from these seniors’ desperately needed limited funds.

Charlene and Mary were paying nearly a third of their protected social security to the debt settlement company. Each company received a significant fee for their “service.” I have talked to hundreds of lower-income seniors signed up with debt settlement companies, but I have yet to talk with a senior who was told, “By the way, before you sign up, let’s make sure you realize your income is protected and does not actually need to be used to pay this old debt.”

Instead of hearing the truth, these senior citizens all heard similar scary stories about debt collectors who would become more aggressive and file lawsuits unless they “signed up” with the debt consolidation company.

Debt settlement or consolidation companies typically charge a high monthly payment, leaving many already poor seniors in utter poverty. Even worse, the bulk of this payment typically does not go toward the old debt, but the debt settlement company's service fees. When the numbers are examined, the only party getting paid is the the debt consolidation company itself.  

Twenty-five years ago, there were no debt settlement or consolidation companies. Local consumer credit counseling services were available to give generally accurate and honest information. We now live in the Wild West of debt settlement companies. All of them advertise heavily for business and they are seeking that business to make money. While some individual states have sought to curtail their worst activities, many states still lack effective laws to curtail the problem. Just Google “debt consolidation companies” and “scam” or rip off” and read scores of articles detailing how many of these companies take advantage of people.

Seniors are particularly vulnerable. Over 40 percent of American seniors over 65 have incomes less than 200 percent of the poverty level, according to the Kaiser Foundation. Seniors now retire with more debt than ever before.  It’s hard to see how these companies’ lack of disclosure about the protected state senior citizen’s income does not amount to an omission of fact designed to generate revenue.  

Furthermore, the scare tactics used by debt settlement companies are inaccurate.  Federal laws also protect persons from unwanted collector contact by phone or mail. A debtor can send a collector a “cease and desist letter,” obtainable on the internet or at www.helpsishere.org, which prohibits the collector from making further contact.  

Certainly, any person should not be discouraged from paying old debt if they can afford it. There may even be a role in certain instances for debt counseling companies to help people pay old debt. However, there is never an excuse to withhold options and knowledge regarding legal rights – especially when making fundamental choices on how to use it.

Learn More About Other Issues and What HELPS Can Do For You.

Peace of Mind
These HELPS clients were dealing with harassing debt collectors and anxiety over old Debt. HELPS provided a solution to their financial worries.