Don’t Settle for Debt Settlement


Kristy Milkov is a 2002 Fordham Law alumna and Feerick Center volunteer. Her work focuses primarily on debt settlement issues and assisting debt settlement victims who seek assistance through the CLARO Program. She describes the debt settlement industry and her work below. She also provided research and drafting assistance on the 2012 New York City Bar report referenced below.

So-called debt settlement (or debt resolution) companies entice economically-distressed consumers with unsecured debt to join their programs by claiming that they can obtain lump-sum settlements of credit card debts for those consumers in exchange for fees. They claim to have special access to the creditors and the means to negotiate deep settlements with them. The programs often require deeply indebted consumers to accumulate sufficient funds in special-purpose accounts before the company purports to negotiate with creditors to settle the accounts owed. Obtaining funds for these accounts almost always requires consumers to cease payments to his/her creditors and pay the debt settlement company instead.

This model usually wreaks further financial havoc on the already financially distressed client. For example, the debt settlement companies that collect fees before a successfully negotiated settlement (allowable because of a loophole in federal regulations) usually require the first 12 to 18 payments that the client makes to go directly to the debt settlement company as a non-refundable fee, instead of toward the amount the creditor needs to accumulate before the company will begin negotiating with the client’s creditors. In addition, the companies are well aware that there are several major credit card companies that refuse to negotiate with them; however, they still entice clients with debts owed to those companies into their programs. Finally, as a result of ceasing payments to his/her creditors, the client often faces lawsuits and potential wage garnishment from the credit card companies, as well as long-lasting impacts on their overall credit.

The Feerick Center, through CLARO, often comes into contact with financially distressed clients of these debt settlement companies. Debt settlement victims often include seniors and people with disabilities whose income is exempt from collection by creditors; working poor individuals who become involved with these companies frequently end up having to file for bankruptcy. We try to assist them on an individual basis, helping them to withdraw from the debt settlement programs and get any money back from the companies that they can (although they often can’t). We also use the examples of these clients to make legislators, regulators, and prosecutors aware of the fraudulent activities of the debt settlement companies, by writing letters and filing complaints on their behalf. We hope that our advocacy not only assists the individual clients but also helps bring to light the deceptive, abusive, and predatory activities undertaken by these companies. From a policy and consumer protection perspective, the Feerick Center believes for-profit debt relief companies should be banned.

For more information on the debt settlement model, see the 2012 report from the New York City Bar Association Consumer Affairs and Civil Court Committees, Profiteering from Financial Distress: An Examination of the Debt Settlement Industry.


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