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Charles Phelan

Why Consumers Should Hire A Debt Coach Before Negotiating With Collection Agencies

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I’ve been involved with debt settlement since 1997, far longer than most people working in this industry. Yet I still have to shake my head in amazement at some of the idiotic stuff debt collectors say.

Now, just to be 100% clear, I have nothing against creditors hiring agencies to collect on their delinquent accounts, and I view the collection industry as an essential part of our economy. The business of granting credit always entails some risk people won’t repay, which creates an opportunity for an industry that helps lenders enforce their contractual agreements. I’m also totally willing to acknowledge that many, if not most, debt collectors do a good job and play by the rules. Where I draw the line is with collectors who flat-out lie to people, break the rules, or make malicious statements intended to bully consumers who are suffering from legitimate financial hardships.

Just the other day, a debt collector with nothing better to do stopped by the ZipDebt Blog and submitted comments against an article I published about two years ago, titled Consumers Should Still Be Wary of the New “FTC Compliant” Debt Settlement Companies.

Normally, when a debt collector posts a snide remark on my blog, I just delete the comment and don’t bother to respond. But these particular posts provide a pretty good X-ray of the mindset of a debt collection “manager,” someone who was apparently good enough at the intimidation game to get promoted to a higher level. I always tell consumers they CAN settle debts on their own, but should get a good COACH on board to help them through the process. And this particular set of comments illustrates why. You’re dealing with people who are taught to repeat the same falsehoods many times daily, to the point where they become very convincing and even start to believe their own propaganda.

In his first comment, the collector focused on a statement I made within the article where I noted, “We have recently had instances where one major creditor routinely refused to accept the final installment on settlements negotiated by third-party firms, and clients were experiencing problems with those settlements.”

What you are saying here is the creditor accepted a structured settlement then refused to accept the final payment to settle the debt? That would be an illegal collection practice by the creditor and in no way a reflection of who negotiated the debt. Once a settlement is accepted the creditor cannot back out of it once both parties agree. That would mean they could promise settlements as a way of getting monthly payments. Maybe you should check your facts or stop lying to your readers.

Nice tone, eh? Note that I’ve never once heard from this individual before he posted this. The language tells me this is a person who is prepared to *start* from the assumed position that I am lying to my readers. He doesn’t actually know anything about me at all, has not taken the time to fully digest what ZipDebt is all about, yet is fully prepared to dismiss what I’ve written. This arrogant and condescending tone is sadly typical of many debt collectors and managers. It’s too bad, really, because I firmly believe collectors would recover far more for their clients if they displayed a little respect and compassion once in a while.

The truth is that in the months before I published that article there had been multiple instances of a specific creditor welshing on documented settlements that had been negotiated by debt settlement firms on behalf of consumer clients. I did not say it was something that always happened, or that it was happening with all creditors, merely that we had “recently had instances” where this occurred. The practice of reneging on documented settlements went on for quite some time. Here is one example that was discussed publicly on Steve Rhode’s blog, about a year after my article mentioned this.

Yes, Mr. Debt Collection Manager, of course this is illegal. Are you asking us to believe that major credit card banks and/or collection agencies never do anything illegal? Seriously? If that is the case, why did the new Consumer Financial Protection Bureau recently fine Capital One $140 million and American Express $85 million, both for multiple violations of numerous laws pertaining to collection of delinquent accounts? Why is your industry always the #1 source of complaints to the FTC, year after year after year? After everything we have seen in the past half-decade, from the subprime mortgage meltdown and credit default swaps, to the robo-signing scandal, is there anyone who still thinks the big banks won’t break the rules if it means billions in profits?

Moving to the collector’s second comment, we have the following masterpiece:

I’ve worked in debt collections for the past 5 years, 3 of them as a manager of a debt collections law firm. Some of the statements I’m seeing on here make no sense, for example; Rodney, why would you have $133k in debt when you are telling us you had the ability to pay $7,000 a month to settle. In addition to that most credit card companies are not willing to extend a low settlement 30%-40% on the dollar without the charge-off. Why would the credit card companies forgive that much debt before they get their tax write-off (charge-off). In addition to these funny statements of settling over 100k in debt in 6-10 months (which would be wealthy people taking advantage of the credit card system) thanks for raising my taxes while you have money to pay your debts.

There are so many false statements and misrepresentations in the above paragraph, I’ll have to break it down sentence by sentence:

Bogus Remark #1: “Rodney, why would you have $133k in debt when you are telling us you had the ability to pay $7,000 a month to settle.”

This refers to a comment posted by a client who had settled all his debts using my ZipDebt program. The full comment can be read here, but this is the relevant portion:

I just achieved my last settlement agreement using Charles’ program. My wife and I had 10 credit card accounts and original balances of $133k when we started the program just back in September 2010. So less than 7 months later we’ve settled (or have made settlement agreements with payments due over the next 2 months) of just under $49k.

Here we see the old-school debt collector mindset at work. If the client paid out $49,000 over seven months to settle their $133,000 of credit card debt, the immediate assumption is that the client had *cash flow* of $7,000/month to work with. Mr. Debt Collection Manager applied the standard “deadbeat” assumption to Rodney’s comment, implying he had plenty of income to pay his bills with, but chose not to. Yet the reality was that the client had experienced a huge pay cut and was forced to rely on his credit cards to survive, then burnt through his liquid savings in a futile attempt to remain current with his creditors. The total minimum payments for Rodney’s $133k were more than $3,000 per month, yet he could barely cover $500/month due to his loss of income. The $49,000 for settlements came from a LOAN against his 401(k) account, another loan from his FAMILY, and the $500/month he was able to set aside in lieu of regular payments.

The problem here is that Mr. Debt Collection Manager does not understand a very basic principle of financial accounting: Income and assets are not the same thing! Rodney could simply have filed bankruptcy instead, but chose to borrow from his retirement account and from family so he could settle instead of file bankruptcy. Mr. Manager also apparently doesn’t grasp the fact that some of his fellow debt collectors *made money* from Rodney’s decision, via commissions earned from those settlements!

Bogus Remark #2: “In addition to that most credit card companies are not willing to extend a low settlement 30%-40% on the dollar without the charge-off.”

I have to scratch my head on this one. All major creditors, with perhaps one exception, prefer to reduce the loss declared at time of charge-off by offering settlements prior to that deadline. During the financial crisis, the banks cleared out hundreds of billions of dollars in credit card receivables through the process of offering direct settlements to distressed consumers. I have thousands of such letters in my database, and about 80-90% of my clients’ settlements are negotiated before the charge-off date. The collector is totally wrong about this statement, but perhaps what he’s actually mad about is that most of this direct settlement activity (before charge-off) did not involve third-party agencies. Translation: If consumers can actually settle on their own with the banks before charge-off, that means a lot less commissions will get paid to collection agencies.

Also, a settlement *is* a charge-off, of that portion of the balance that gets forgiven via the settlement. A “manager” working at a major law firm should be well aware of these very basic accounting facts, but as you may have guessed, one doesn’t need to be a genius to manage a collection agency.

Bogus Remark #3: “Why would the credit card companies forgive that much debt before they get their tax write-off (charge-off).”

What tax write-off? There is no “tax write-off” associated with charge-off. Charge-off equals a loss to the creditor, which means lower profits, which means a lower bill for taxes. Reduced profit is not a tax benefit! It’s a loss, period. Anyone who believes otherwise is welcome to cite the relevant tax code.

Bogus Remarks #4 & 5: “In addition to these funny statements of settling over 100k in debt in 6-10 months (which would be wealthy people taking advantage of the credit card system) thanks for raising my taxes while you have money to pay your debts.”

“Wealthy people taking advantage of the credit card system”? This is completely absurd. As I noted above, the client in question was in desperate straits financially, did not have the income to make his minimum payments, and used his few remaining resources to take the responsible path of negotiating settlements with his creditors.

This type of mean-spirited debt collector cannot allow himself to think for one minute that the debtor might really have a financial problem. Nope. If you cannot “just pay your bills,” it must automatically mean you are a lowlife deadbeat, or a wealthy person trying to scam those poor credit card banks – you know, those same banks that almost brought down the entire world economy. Yep, those poor bankers are being taken advantage of and really need protection from us big bad consumers (aka ZipDebt clients :-)).

And what’s this laughable nonsense about “raising my taxes”? Talk about apples and oranges! There is no relationship whatsoever between the personal income tax rate set by Uncle Sam and losses incurred by the credit card industry. Last time I checked, Congress and the IRS were not too concerned with increasing Federal taxes every time Citibank posts a quarterly loss.

Now, if you are a consumer trying to settle a credit card debt, imagine running into this particular debt collector on the telephone. Here is an individual prepared to rattle off a string of lies with enough confidence to make his pronouncements sound like Holy Writ, who is willing to bully and browbeat a distressed consumer into making payments no matter what. Should consumers expect compassion, mercy, or even honesty and plain dealing from such a collector? Absolutely not. Arrogance, condescension, accusation, and flat-out lying are what you can expect.

Again, when you repeat the same lies hundreds of times per week, you start to believe those lies yourself and become very convincing at telling them to the next person on the list. For consumers to successfully negotiate with this type of collector, training and ongoing coaching is required. Collectors like this one are actually quite easy to handle when you know the ground rules, understand how the collection process actually works, and have some training on how to respond to these tactics. That’s what I do here at ZipDebt. I arm consumers with the tool kit needed to successfully negotiate settlements with original creditors, collection agencies, collection law firms, and debt purchasers.

It’s pretty funny, actually. Whenever I post the results achieved by ZipDebt clients proving that DIY debt settlement is a far more effective solution than hiring a debt settlement company, I’ve been attacked by people working inside the debt settlement industry. I’ve been accused of helping people “game the system,” and told my results were “too good to be true.” Based on the comments posted by Mr. Debt Collection Manager, it seems debt collectors don’t believe me either. I’m fine with that though. If they are mad at me too, I take it as a good sign that what I do works very well for consumers. 🙂

7 Signs Your Credit Card Debt Is About to Implode

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As we move into 2013, U.S. consumers are carrying balances exceeding $850 billion on approximately 600 million credit card accounts. This is down from the peak of more than $950 billion during 2009-2010, but credit card debt is still the third largest component of household indebtedness, behind only mortgages and student loan debt. Americans’ love affair with plastic continues as many have come to rely on their credit cards to weather extended periods of unemployment in a stagnant economy.

When the latest batch of monthly statements starts showing up in your mailbox this month, you may find yourself wondering whether your debt load is starting to get out of control. I started helping consumers with their debt more than 15 years ago, and in that time, I’ve learned to recognize the warning signs of impending financial disaster. These are tried and true indicators that you’ve fallen into the credit card debt trap, a spring-loaded steel monster designed to snap shut and hold you firmly in its grasp. This is not just about the combined total balance you’ve been carrying from month to month. For one person, a debt load of $30,000 may be no problem, while for someone else it may represent total disaster. Rather, it’s about how much debt you’re carrying relative to your income, and whether the situation is sustainable over the long haul.

Let’s take a close look at the seven warning signs your debt is getting out of control. You don’t need to have all seven indicators to be at serious risk of a credit card meltdown. Even if only a few of these factors describe your situation, you should still take a hard look at your finances and consider the basic options for debt relief.

1. Credit Limits Maxed Out or Lowered

When Congress passed the Credit CARD Act in 2010, it eliminated the universal default feature where a bank could increase your interest rate even while you were paying them on-time, simply based on a default with an unrelated creditor. This was a big relief for consumers, and it stopped the banks from pushing people off the financial cliff when they were already hanging on for dear life. However, creditors still have an alternate method of accomplishing the same push. They can lower your available credit, even when you have paid them on time per your agreement.

The hidden problem with carrying credit card debt balances is that as the balances climb, you will eventually exceed the optimum credit utilization ratio, and this in turn will lower your overall credit score. Once that happens, your creditors may react by trimming open available credit. This further increases your credit utilization ratio, thus lowering your score even further, and creating a vicious downward spiral.

Once you reach the point where you have no available credit and have maxed out the cards, you’re trapped. Instead of being able to use your credit to manage monthly cashflow and hold the line, you suddenly find that you’re carrying a giant set of balances and you have nowhere else to turn for additional credit.

2. Interest Rates Bumping 20% Even Without Default

The mathematics of credit card debt is relentless. At a time when interest rates are at a historic low, credit card institutions continue to charge interest rates that are very high by comparison. While many cards carry annual percentage rates (APRs) around 12%, it’s common to see non-default APRs up to 20% for purchases and 25% for cash advances.

Banks are required now to provide 60 days’ notice of any interest rate increase, but if you receive such a notice when you are maxed out, what can you do about it? Not much, except to keep making payments at the higher APR.

If you revolve balances totaling $30,000 at an APR of 20%, with monthly payments at $750, it will take 67 months to fully pay off the debt. Given the financial challenges that led to $30,000 of debt in the first place, how likely is it you will be able to pay $750 month after month without fail, for more than five years? One little bump in the road, and you’re on the slippery slope.

What most people end up doing is paying only the required minimums, in order to free up as much extra cash in their monthly budget as possible. Using the $30,000 scenario again, if you were to just keep paying only the minimum as the balance declined, it would take you an astonishing 44.5 years to pay off the debt.

3. Default Is Always Just Around the Corner

Another clear warning sign that your credit card debt is about to go nuclear is that you are constantly skating on the edge of defaulted payments. It’s a struggle every month to cover the required minimums, but you are managing to just hold the line and so far have not missed any payments. All it takes in this situation is an upward tick in interest rates (still legal with 60 days’ notice) to push you over the edge.

Many of the banks now structure the minimum payment formula so that you are required to pay 1% of the balance each month, plus that month’s interest charges. So, for example, if you have a card with a $10,000 balance at 12% interest, using this formula your monthly payment would be $200, with $100 going toward principle and the remaining $100 toward interest. But if that rate jumps to 18%, watch what happens. The new minimum payment is $250 per month, with $100 toward principle and $150 to interest. This is a 25% increase in the required monthly payment.

Multiply this across several accounts and you can easily see how your payments could quickly climb out of reach. All of this can happen without a single defaulted payment taking place, but the new increased minimums are sometimes enough to cause people to default. Then of course, the trap gets worse as the default rates of 29% or more kick in, not to mention $39 late fees.

4. Default Rates Have Already Been Triggered

Let’s say you have been faithfully making your minimum payments month after month. You are so stretched you have no emergency reserves, so when you’re suddenly faced with a major unplanned expense (car repairs, medical bills, etc.) you are forced to skip a couple of payments on your largest balance of $10,000. Goodbye 12% APR, and hello 29%! Then you start the “credit card shuffle,” where you skip other payments to catch up on the first ones you missed. Before long, all the accounts are affected, and you’re facing 29% interest rates across the board.

Let’s see what happens when APRs explode from “only” 20% to 29%. Instead of taking 67 months to pay off the $30,000 total, it will now require 143 months (almost 12 years). You will pay $76,838 in interest over that period, instead of “only” $19,851 of interest, a difference of more than six years longer and $56,987 of additional interest. That was a very expensive car repair.

Once the default interest rates have been triggered, you’ve fallen off your own private version of “the fiscal cliff.”

5. Credit Card Payments Exceed 15% of Gross Income

Whether or not your credit card debt load represents a financial burden depends on your income. A good working rule of thumb is that credit card debt payments should never exceed 15% of your gross monthly income before taxes, and ideally should be well under 10% of gross income. Obviously, everyone’s situation is different, so one person might be able to service a lot more debt if they own a home that has been fully paid off. But as a general rule, most people still have mortgage or rent payments, car payments, and of course all the usual household bills. If you can keep credit card debt payments at or below 10% of your gross income, then most people would find that situation manageable, emergencies aside. But once the figure starts climbing up over 15%, trouble is brewing.

For example, say you’re carrying $50,000 of debt, with $1,250/month minimum payments. Your income is $5,000/month gross, so you are paying 25% of your gross income toward credit card payments, mostly for the privilege of staying $50,000 in debt! That leaves you $3,750 per month for taxes, mortgage or rent, car payment, utilities, telephone, food, insurance and other household expenses. For most consumers, this would not be a sustainable situation, at least not for the long period of time required to pay off $50,000 of debt via monthly payments.

6. You Are Not Funding Retirement Accounts

When credit card debt payments start to gobble up more and more of your disposable income, usually one of the first things people do is stop contributing to their company or personal retirement plan. If you’re doling out 15-20% of your gross income toward the servicing of credit card balances, then it’s almost impossible to continue funding a 401(k) or IRA account. The long-term financial impact of this decision is enormous.

Let’s look at the potential long-term impact. Still using our example of $30,000 debt at payments of $750 per month and APR of 20%, we saw that it would take more than five years to pay off the debt. What if that same $750 per month were invested in a retirement account yielding annual returns of 8% (below the historic returns of the stock market over many decades)? Assuming an age of 40, someone who funds $750 per month for five years, and then left the investment alone until retirement at age 65 would have more than $273,000 of additional nest-egg funds. Perhaps you don’t feel that the “cost to play” of $19,851 interest doesn’t seem so bad. How about the loss of more than a quarter million of retirement money? The long-term cost of carrying “only” $30,000 of debt is simply staggering when you analyze the true impact.

7. You Are Constantly Feeling Stressed or Anxious About Your Debt

The other warning signs discussed above all tie back to the unforgiving math of debt, interest rates and monthly payments. But there is an emotional factor that must be included here as well. Managing high levels of debt is stressful, to be sure, but it affects some people worse than others. Only you can decide when you have hit the wall emotionally. But if you’re losing sleep at night worrying about how to cover all your bills, or you are experiencing bouts of anxiety or panic, then your physical health is involved and you need to take action.

Medical research shows that continued stress has a deleterious effect. High blood pressure, increased risk of stroke or heart attack, reduced ability to fight infections, and other serious health conditions can all be caused or made worse by ongoing stressors in our lives. Your excessive credit card debt may not only cost you a comfortable retirement in terms of financial resources. It may also actually shorten your life span.

If you are seeing some of these warning signs in your own life, then it’s time to get serious about your debt situation. The longer you wait, the harder it will be to solve the problem. Start by researching the available options for eliminating debt. These options include debt roll-up, credit counseling programs, bankruptcy, and debt settlement. Consult with a local bankruptcy attorney to learn whether you would be able to file under Chapter 7 and fully discharge the debts. Talk with a reputable non-profit credit counseling agency. Debt settlement is another viable option for people who would otherwise have to file bankruptcy under Chapter 13 (where a portion of the debts is repaid during a 3- to 5-year period). Leave your emotions at the door, do your homework, and let the numbers lead you to the correct solution for your situation. Whatever strategy you ultimately choose, the important thing is to recognize you have a problem and to take action.

DIY Debt Settlement Myth #10: My Credit Score Will Be Better If I Hire A Company To Settle My Debts

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This is the tenth and final post in a series discussing the most common myths about do-it-yourself debt settlement, as compared to hiring a third-party company. In this article, I’ll discuss the myth that settlements negotiated by professional debt relief firms carry less credit damage than self-negotiated settlements.

Before the FTC really started to crack down on the industry a couple of years ago, the entire subject of credit damage from settlements was downplayed to avoid scaring off potential clients. But if the credit objection was raised, sales reps would often claim that their company would negotiate a more favorable credit rating than the client could on their own. This myth doesn’t come up as often as it did a few years ago, but it’s still sometimes repeated online in debt-related articles, on landing pages for debt relief lead-generation sites, and during sales presentations.

Unfortunately, it’s a fact of life that settlements are damaging to your credit score. There really is no way around this, and there is no magic solution for this problem. Remember – debt settlement is best viewed as an alternative to Chapter 13 bankruptcy, so credit damage is already part of the overall financial picture anyway. The simple reality is that settlements get reported as settlements, period. The reporting language may say, “account settled for less than full balance,” or some variation on that theme, and the code attached to the entry is definitely negative compared to an account held in current standing. There is literally nothing that any company or individual negotiator can do to change this. All of the major banks have existing language in their settlement agreement letters that specifies how they will report, and these policies in turn are subject to the Fair Credit Reporting Act. Even if they wished to – which they most certainly do not! – creditors are not going to forgive a chunk of money AND do extra work to help you clean up your credit in the process. Why should they?

The above notwithstanding, I certainly have no objection to consumers making the effort at requesting a more favorable reporting on their settlements. It’s just that one should never give up a good settlement over this minor detail. When I do see exceptions, typically they pertain to debts that have been sold to a debt purchaser and are also beyond the legal Statute of Limitations. Under those conditions, it’s possible to get the purchaser to remove their separate derogatory entry upon settlement. However, the charge-off entry by the original creditor will usually still be there anyway, so the improvement will be incremental at best.

I have also seen techniques promoted that are very risky, just to give a potential customer the impression that the company has a “better” system for handling credit reporting on settled accounts. For example, some outfits claim they can have language inserted into the settlement letter that classifies the written-off balance as a disputed amount. Supposedly, this results in avoiding a 1099-C on the forgiven debt, and also gets the account reported under disputed status (and potentially even deleted outright). The problem with this approach is that it totally negates the value of the settlement agreement letter, leaving the consumer exposed to further collection activity – a far worse outcome than simply dealing with the expected credit impact of a reported settlement.

The bottom line is that there is nothing special a debt settlement company can do to reduce the damage to your credit score associated with reported settlements, so there is no credit-related advantage to be gained by paying someone else to do the negotiating. Further, it’s not all that difficult to restore your credit after completing the settlement process anyway. So there is very little reason to be concerned about this issue in the first place.

Myth busted. Settlement companies have zero influence on the manner in which settlements are reported on your credit file. Self-negotiated settlements will be reported in exactly the same fashion as professionally-negotiated settlements, and you can restore your own credit later on anyway.

Update January 3, 2023: Many consumers are concerned about credit reporting of settled or paid collection accounts because of fear they might have issues renting an apartment or a home until the credit report gets “cleaned up.” This leads people into various credit repair scams and schemes, which can often make things worse instead of better. If you are a landlord looking to screen a tenant, or a tenant who wants a credit screening for a rental without first having to disclose all your personal information, then a valuable resource is SmartMove’s resource page on renting with a “bad” credit score.

DIY Debt Settlement Myth #9: I Just Make One Monthly Payment And They Will Take Care Of Everything For Me

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This is the ninth in a series of posts discussing the most common myths about do-it-yourself debt settlement. In this post, I’ll discuss the myth that a traditional debt settlement approach provides peace-of-mind for consumers who enroll in such programs. What many consumers want is to be able to make a single monthly payment into their debt program, with the expectation that the debt company will handle everything smoothly from there, with little to no involvement required by the client. Consequently, the sales pitch for traditional debt settlement is built around this important need.

In theory, you make a single monthly payment into an “escrow” account to build up funds for settlement, and the company is supposed to handle all contact with your creditors. However, out here in the real world there is a big problem with this approach. I’m referring to the initial 6-month period that leads to charge-off status for your accounts. With most major creditors, the account is worked by an in-house team of collectors up to the point of charge-off, although there are exceptions where pre-charge-off accounts are outsourced to a third-party collection agency. Either way, your creditors do NOT want to hear from a debt settlement negotiator. They want to talk to YOU instead.

How does your debt relief firm handle this problem? The short answer is: They do nothing for the first six months! Needless to say, making payments into the program for six months when literally nothing beneficial is happening is hardly conducive to peace-of-mind! For many people, it represents some of the most intense stress they have ever experienced.

This is a real dilemma for the traditional debt settlement company. If they send out a Power-of-Attorney or a cease communication notice during this initial 6-month phase, it could prompt the creditor to escalate early and place the account with a law firm in the client’s home state. This almost automatically creates a pressure-cooker situation and results in high percentage settlements at 70-85%, or payment programs for the full balance all over again. So a savvy negotiation company won’t send out such triggering documents, and instead they will coach you to lay low and just let the accounts go past charge-off, after which they will intercede with the assigned third-party agencies and try to negotiate settlements on your behalf.

Meanwhile, you will continue to receive a barrage of collection phone calls and scary-sounding notices. As anyone who has ever been on the receiving end will tell you, peace-of-mind goes out the window when the collection bombardment kicks into gear.

To make matters worse, by going the route of traditional debt settlement, you cost yourself six precious months of inactivity, a period in which some of the best settlements become available (at less risk to you legally). So virtually nothing gets “taken care of” during that very important initial period. After that, creditor contact on the part of a debt settlement company is still minimal – they generally wait until you have enough money built up in your account for them to start making offers.

Myth busted. The “just make one payment per month and we’ll handle everything” approach sounds great in theory, but it only adds to your stress rather than reducing it. Little or no creditor contact takes place for the first six months, and after that, usually only when you have money to settle with. Meanwhile, it’s open season on you, with all the usual collection actions taking place, including potential legal action. Instead of waiting six months to start, it’s far more effective to tackle the project on your own, so you can take advantage of the settlement opportunities offered directly to consumers on accounts approaching charge-off.

R.I.P. Delpha Renard, 1944-2012

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It is with a deep sense of loss that I must inform clients, former co-workers, and the general public of the passing on September 5, 2012, of my long-time colleague and good friend, Ms. Delpha Renard. She died peacefully after a protracted battle with lung cancer. Delpha fought valiantly for about 18 months after the initial diagnosis, and toughed her way through multiple rounds of radiation treatment and chemotherapy, doctor visits too numerous to count, needle biopsies, CT scans, and the debilitating symptoms associated with advanced lung cancer.

I will greatly miss my old friend Delpha, but I do take comfort from knowing that her pain and suffering are at an end, and that she is at peace now. I would like to thank the wonderful staff at Sharp Grossmont Hospital and Cottonwood Canyon Healthcare Center for taking great care of Delpha during her final days. It’s never easy to watch a good friend decline before your eyes and pass away, but the doctors and nurses at these medical centers made sure that Delpha had the necessary comfort care.

For those of you who didn’t know Ms. Delpha Renard, she was a “character,” to say the least. A bit eccentric (by her own admission), Delpha was by turns witty, smart, funny, tough as nails on the outside, and a great big sentimental softie on the inside. She was also extremely knowledgeable in many areas and had accumulated an amazing amount of experience over her long and eventful life, experience that she generously and happily shared with those clients who had the privilege of working with her over the years.

Delpha was certainly no stranger to struggle, loss, and tragedy, but through it all she remained tough, sassy, independent, unbowed, and – just plain prickly. 🙂 Just ask any of the debt collectors she dealt with during her stint as a professional debt negotiator, or the many clients for whom she provided that much-needed “tough love” to get them going on resolving their debt problems.

Time and again, I would direct anxious clients to Delpha for assistance, and by the end of the conversation, they would always be laughing and joking like old friends. She had that knack, that intangible “something” that people instantly recognized. She was a genuine human being with a heart of gold, and she really cared about the people she was trying to help.

Delpha also loved animals with a deep passion, and one of her main concerns during her illness was to ensure proper care for her two dogs, cat, and four birds. Thankfully, all of her beloved pets were quickly placed with good loving homes, and they are all doing fine now. Near the end, once it became clear that she was no longer in a position to care for them herself anymore, I’m sure that Delpha took great comfort from knowing her pets would still be fine.

Delpha is survived by two brothers, as well as her siblings’ several children. The family has requested that in lieu of flowers, anyone wishing to express condolences please consider contributing an equivalent value to the non-profit organization headed by the wonderful loving neighbor who provided daily assistance, comfort, and care to Delpha during her final months. Donations will be gratefully accepted at the following address:

Birth Parent Association
529 Hart Drive, Unit #7
El Cajon, CA 92021

Thank you, Delpha, for being such a loyal friend all these years. May you now have the peace and rest that you deserve.

DIY Debt Settlement Myth #8: A Debt Settlement Law Firm Will Get The Best Results

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This is the eighth in a series of posts discussing the most common myths about do-it-yourself debt settlement. When consumers first hear about the debt settlement strategy, one of the first questions they usually ask is: “What happens if I get sued?” In post #5 in this series, I discussed the fact that many traditional debt relief companies try to create the impression that consumers will have lower risk of legal action if they enroll with their program, when the truth is that they a actually increase the legal risk to their clients.

In this post, I’ll focus instead on the so-called “attorney model” for debt settlement, where the company itself is a firm headed by attorneys. We’re talking about an actual law firm, with bar-licensed attorneys owning the company, as opposed to non-legal debt relief companies that may have an attorney on retainer to help with client lawsuit activity.

The theory behind the attorney-model is that creditors will be far less inclined to litigate their claims if they know that you already have an opposing attorney on your side. So when a prospective client asks the question – “What happens if I get sued?” – the sales rep’s answer is: “Once your creditors realize you have a lawyer on your side, they will be far less likely to sue you.”

Here again, there simply is no truth to this sales claim. There is no evidence whatsoever that using one of these companies lowers the risk of legal action, and plenty of evidence to the contrary. A few minutes on Google is sufficient to turn up numerous consumer complaints about so-called “attorney model” debt settlement firms, where an individual enrolled in one of these programs thinking it was a safer way to go, only to see swift legal action anyway – usually followed by total inaction on the part of the company they had already paid huge fees to.

Also, you would think that a law firm would provide actual legal representation in court in the event a lawsuit is filed against one of their clients. This is another common sales claim, “We’re a law firm, so we will take care of any lawsuits that might happen during the program, and we will defend you if it comes to that.”

The reality is that most of the attorney-led debt relief firms have specific language in their contracts stating that legal representation in the event of litigation is not included in the basic contract. Often, there is a separate schedule of extra fees that must be paid by the consumer before any actual legal services would be rendered.

When the FTC banned advance fees in 2010, some attorneys saw an opportunity to carve out a loophole and continue charging upfront. Attorneys are generally permitted to charge in advance of rendering service, so the theory was that such firms would be exempt from the FTC ruling. Leaving aside the fact that there is no exemption under the FTC rule for attorneys who practice debt settlement as their primary business activity, it’s easy to see that the whole “attorney-model” concept was just a cover to continue gouging consumers. These companies have some of the highest fees in the industry, with upfront fees of 25-30% of the enrolled debt being common. There is no possible way that such a fee structure can work to the consumer’s advantage. Hence the numerous complaints we’re seeing against such companies, with lawsuit after lawsuit being filed against them by Attorneys General from numerous states. As a result of such intense regulatory pressure, one of the largest attorney-model companies has recently announced that they are no longer taking on new clients. Hopefully, it’s only a matter of time before most of the other toxic firms exit the industry as well.

Myth busted. Attorney-model debt settlement firms are no better at preventing lawsuits than any other type of debt company, and given the huge front-loaded fees involved, consumers are literally paying good money to increase the risk of litigation and program failure. The key to avoiding lawsuits is to settle your debts quickly, before the legal fireworks begin.