When revenues are down, receivables take a turn for the worst, and creditors are calling, many business owners make the right decision and look for help. Unfortunately, there are many groups of people and organizations out there who look for the opportunity to take advantage of these business owners, even though they are close to rock bottom.

Debt has become a very prominent part of society.  Workouts, settlements, consolidations, and modifications have become a huge industry.  One quick Google search for ‘credit card debt’ will produce thousands of companies who claim to be skilled in negotiating and working with creditors.  They promise debt reduction, a debt free lifestyle, freedom from creditors, etc.  However many of these companies are scams or at the very least, vastly overcharge for very minimal services.  These companies focus on unsecured debt such as credit cards, leases, lines of credit.  They charge high fees that are NOT based on their success, they front-load their fees so that they get paid in full before performing any settlements whatsoever, and their turnover rate is astronomical. Many have been served cease and desist orders and have been pursued by Attorney Generals for the way they abused the debt settlement industry.

These companies often take the first settlement offered to them.  They shoot to hit the ‘industry standard’ which is a laughable 50% or higher, a number anyone with a brain could negotiate.  They do whats in the best interest for their quotas and projections and NOT whats in the best interest of their clients.  Many do little or nothing at all because they fully anticipate that after their fees are paid months will have past, and their client is now out of money and drops out of the program.

The proof is in the numbers.  Recently one of my clients had a relationship with one of these restructuring/settlement companies.  He enrolled one vendor debt of $60,000 and three credit cards for a total debt enrolled of $120,000.  The company they hired charged them fees as follows and had the following outcomes

FEES

• 35% of the debt forgiven!!
• 1% per month of the total debt enrolled in repayment plans
• $75 per creditor listed
• $15 processing fee for each check sent to a creditor for payment
• 2% of total debt enrolled if the agreement is cancelled.

RESULTS

• NO RESULTS WHATSOEVER ON CREDIT CARDS. No debt reduction, no repayment plan, no reduction of interest or penalties.  Literally NO progress on any of the cards.
• The one vendor enrolled added $15,000 in collection fees to the debt which made the debt $75,000. This company ‘negotiated’ a settlement back down to $60,000 (the original amount owed) paid out over a relatively short period, while maintaining a COD relationship until the settlement was paid.  Even though this ‘settlement’ was for the original principal amount owed, the company still charged 35% of the $15,000 that was supposedly saved.
• Total fees charged for these services $26,000.

Thats correct, $26,000 in fees for $120,000 in debt with almost NO results.  The client was actually worse off then when they started.

I decided to speak with the CEO and the Representative of this company to discuss this.  They justified their actions by stating that they DID save the client $15,000 and that they made the payment affordable for the client’s cash flow(even though their fee structure charged the client 1% of the 75K per month)… Thats the main benefit.  They then went on to preach from their contract on how they were legally entitled to all of their fees.  The conversation was frustrating and generally disappointing.

Their facts made no sense.  This was a vendor, of course they were going to take this so called settlement. They were getting paid in full, and was able to place their relationship on COD… Think about it, look at your receivables.  If one of your receivables that is 90-120 days late called you and said, “Hey, I want to pay the entire amount owed.  All you have to do is wipe off your collection fees and let me pay over time… Oh and by the way, we still want to give you future business which we are willing to do COD.  Is that okay with you?” would you accept?  Of course you would.  A receivable which looked bad just told you they were going to pay in full, and on top of that you get future business at no risk to you.  There was no skillful negotiation. It was definitely not worth paying $26,000 for that one phone call.  Any business owner could negotiate these terms in a matter of minutes.  If you’re going to hire anyone to do something that simple, hire a book keeper or a receptionist. $26,000 for $15,000 in fake debt forgiveness is just too foolish of a decision when your business is circling the drain.

The lesson learned here is that even at your lowest point, there are companies who are looking to take advantage of you with the mindset of sucking as many fees as possible from your business before it crashes and burns.  They are not invested concerned about your success or survival.

So now the question is how to avoid these companies.  Looking for help may be your only choice.  Debt forgiveness is likely the only thing that will allow you to survive in today’s economy.  Unfortunately there is no clear cut answer, however there are a few check and balances that I highly suggest you use while considering engaging with any debt workout/restructuring company.

1. MEET THEM: Even if that means getting on a plane and taking a day off.  Create a personal relationship.  It will allow you to get a better feel for how the company works, to get a better look at their character, and makes your situation much more personal instead of just another file on their desk… Bottom line is it builds trust and will be well worth the few hundred dollars it costs for airfare.

2. CHECK REFERENCES: Get success stories.  They are not only powerful and will make you more comfortable that the company can deliver what they say they can, but numbers are powerful.  Get actual debt settlement numbers, calculate the percentages, ask how long the process took, what obstacles occurred, etc. Do not accept letters of reference.  Many company will post a hundred letters of reference  on their website, with little details and no numbers, and expect that to be satisfactory… It is not. Get their references on the phone or meet them in person.  If a company cannot produce these types of references, than it is likely that their services are not that valuable.

3. DO YOUR RESEARCH: Go online and do some searches. Look for disgruntled customers or to see if the company or any of its related companies have been cited for abusing the debt workout industry.  If you see something that concerns you, discuss it with the owner/CEO.  If they cannot calm your concerns or cannot produce a satisfactory result, then you should not do business with these people.

If is disheartening that we work in a industry with so many predators.  Here at Second Wind we resolve all types of debt problems but specialize in secured debt, specifically SBA backed loans.  Yes, we charge fees, after all we are running a business as well.  However, our fees are made affordable and are based on our success.  Our mission is to save families one business at a time.  We are as invested in our clients as they are with us.  Industry standards and quotas are not how we work.  We must do better, we know what is at risk.