Debt Restructuring – Just Another Consumer Rip-Off

In July 30, 2011

Steve Rhode over at has published an excellent article exposing a new “debt relief” variation that will only spell trouble for consumers who are duped into enrolling. It’s called “debt restructuring,” and Mr. Rhode provides a very detailed discussion on the marketing approach being used to promote this program, including the totally absurd sales scripts used by boiler-room sales agents to sell this toxic sludge of a “service.”

By calling it “debt restructuring” instead of “debt settlement,” the people who have set up this program are trying to work around the FTC rules. After everything that has taken place in the debt industry over the past few years, the top players certainly must have full knowledge that their program is a scam from top to bottom, but they want their network of affiliate marketers (who move from debt program to debt program) to promote this as long as possible before it gets shut down and they move on to the next scam-du-jour.

For full technical details, please refer to Steve’s article, but the short version of the pitch is a fairy tale that goes like this:

WHOPPER #1: Stop paying your creditors and in six months they will charge-off the accounts and SELL them to debt purchasers. Don’t worry about lawsuits meanwhile, as creditors hardly ever sue that quickly.

WHOPPER #2. When your accounts get close to charge-off, we will send offers to your creditors to purchase your debts from them for DOUBLE what they normally receive from the debt purchasing industry.

WHOPPER #3. As part of your enrollment agreement with us, you agree to pay back 40% of the balance over time, but this money will go to the debt purchaser that we sell your account to, so the original creditor is out of the picture after the debt is bought away from them. Voila, guaranteed 40% settlement with no legal risk and no further credit impact.

WHOPPER #4. Yes, we know you are worried about lawsuits, and even though we downplayed that risk during the sales pitch, you should purchase our “optional” legal protection package for $3,000 to $5,000 extra. (How else are we going to get rich off you?)

The structure of this alleged “program” is actually quite a bit more convoluted than I have described it above. I have simplified it down to these four main points, because if the basic theory is not valid then obviously the whole program is bogus. Let’s tear these points apart one by one:

1. Yes, if you stop paying your creditors then after 180 days of delinquency the account will go past charge-off and be declared a loss on the creditor’s books. But the debt restructuring plan offers ZERO guidance to consumers during this crucial six-month period. As someone who has coached thousands of consumers struggling with credit card debts, this initial period of default is an emotional roller-coaster involving a barrage of collection calls and notices, legal threats, and potential lawsuits. It’s imperative for consumers to have solid coaching to get through this phase of collections.

Most importantly, it’s simply NOT true that lawsuits don’t happen before charge-off. They can, and do, and while they remain the exception rather than the rule, it’s impossible to apply one-size-fits-all advice to consumers. Every major creditor is different, and in some cases, a client could be targeted for early attack if their balances warrant it, or other factors on their credit report come into play. Telling people to “just ignore” the calls and letters for six months is extremely BAD financial advice.

2. There are three major problems with the assumption that offers to purchase debt accounts for double the going rate will be accepted by creditors with any consistency or regularity (which would be required in order for the program claims to be true). First of all, most creditors do NOT immediately sell their charge-off paper. In fact, they assign the accounts to contingency-based collection agencies, often on rotating assignments for 3-6 months. Therefore a “quick sale” is by no means assured even with those creditors who do tend to sell their accounts sooner rather than later. Second, there are certain major creditors that NEVER sell their accounts to debt purchasers under any circumstances. Nearly every client has a card from one of these creditors, so the program fails right out of the gate for people who have such accounts. Third, the purchase offers will quickly stamp a clear footprint on the technique used in this program. Such offers will quickly be coded and recognized for what they are – an offer coming from a debt restructuring firm. This will lead to retaliation by some of the major creditors, in the form of early-attack litigation against consumers using this system.

3. Aside from the problems discussed under points 1 and 2 above, there is the further problem that this type of arrangement violates every known standard of fiduciary responsibility. The role of debt service firm carries with it a fiduciary responsibility to do right by your clients and not become involved in a conflict of interest between your own needs and the clients’ needs. When a debt service company also becomes the purchaser of the clients’ debts, this clearly creates a conflict of interest. For one thing, it locks in the consumer to a 40% settlement plus the usual sky-high fees, when some creditors routinely settle for less. How does this serve the best interests of the consumer then? Anyone who understands the first thing about fiduciary responsibility will immediately recognize the potential for abuse in this type of approach.

4. The idea of a “legal defense shield” is essential to the sale pitch, since most consumers are savvy enough to realize that creditors have the right to sue for recovery on delinquent accounts. The insidious nature of this “optional add-on” is that it forms the basis for the high payout on sales commissions, so virtually every client will be “up-sold” until they buy the legal package. The problem is that it will be impossible for debt restructuring firms to deliver the claimed legal representation. If you get sued by a creditor, there is no magic defense against a judgment. And there will be an extra dose of intensity with lawsuits against clients using this system. The major creditors will want to stomp on this approach hard, so people will get punished by quick and aggressive litigation once their creditors catch on. The legal defense “shield” will be overrun with a barrage of lawsuits, and the whole thing will collapse of its own weight when the Internet becomes filled with consumer complaints. Many will be forced into bankruptcy as a result of their involvement with this program.

If you’re struggling with credit card debt, steer clear of bogus programs like this one and give us a call at 866-515-2360. We’ll help you analyze your situation and determine the best-fit strategy for your financial circumstances. What we do is not based on some theory, but rather what WORKS and has proven EFFECTIVE in resolving problem debt.



  1. You are actually way off and incorrect in the advice you are giving. Debt settlement programs are intended for people who have no other choice. Larger debt settlement companies have relationships built in with most creditors. It is a case by case scenario and is not for everyone but neither is bankruptcy or divorce. To say that debt settlement is a scam or rip off only shows your lack of actual knowledge of financial affairs in default servicing.

    • Jeff, thanks for your comment, but it sounds like you didn’t even bother to actually read the post you are criticizing. The article above is more than three years old and wasn’t even about legitimate debt settlement programs. I was warning consumers about a scam called “debt restructuring,” which was nothing more than an attempt to get around the October 2010 TSR changes.

      As to your remark that “larger debt settlement companies have relationships built in with most creditors,” that is bullshit and you know it. Or maybe you are just a newbie sales rep who believes the nonsense management is feeding you? I’ve been doing settlement since 1997 and have seen tens of thousands of settlements in my day, and personally coached thousands of people to settle on their own. When did you start, last week? Let’s see the published track record of your company and then we can have a discussion based on facts rather than sales hype, ok?

  2. I am so glad that I read your articles Charles and Steve I want to thank both of you so much! Fisrt of all if anyone is thinking about getting involved in this program RUN don’t walk from this Scam. I am ashamed to say that I did get involved. But because of these articles I got out today and I called all my creditors and to my amazed they have worked very well with me. I started making payments to this program September 2,2011. To make a long story short everything that is in this articles are true. I am glad that I woke up. I got lawsuits from collection agencys, charge off accounts, and cival suits. I got out of this SHIT! I had a Citi Bank card and they took it into the program, I had a Bank One card and they took that into the program. I made calls everyday about my lawsuit and all they would tell me it was a hearing and the judge would get a arbitrator because my creditors say they did not recieve there offers. This way they can’t say that they have not received them. When I talked with Citi Bank and explained the situation, they don’t work with them nor do they negotiate with them. But I had 3 creditors in that sick plan, and I am paying them the same thing I was putting into the plan without fees. They have cancelled the lawsuits against me and I made my first payment today (April 27 2012). I will be able to negotiate with them in the future, but I needed to make some payments. BOA cut my owed amount by $1500. and I will pay $183. with no interest for 18 months. Which I plan to pay off in December. I will be able to pay 2 off in December and My big one in April without worrying about lawsuits. All of that is squashed! That program is to stressful for anybody. I got scamed into because all I wanted to do is get a loan and pay off my bills and I was told I had to much credit card debt for a loan. I had never missed a payment on my credit cards, all I wanted to do was get them paid faster with one monthly payment, and I went through some junk, you would not believe. I can’t put it all in ths post, but spread the word and people out there don’t let this happen to you.

    • Clenteria, thanks for posting your comment here. Sorry to hear you went through this, but congratulations on freeing yourself from this scam and taking the initiative to contact your creditors yourself and work things out.

  3. It’s great to see that there are people out there with a real concern for the economic future of the consumers who are the real driving force behind the economy

  4. I am glad to see there are still honest people left in the industry. I also have become aware of the new “debt restructure programs” I do not think I would be sleeping well if I ever thought this is the new “compliant’ best option, another fly by night company. Coaching and paying no FEES until you save has been the model for many years before all these companies popped out, coaching is definitely the smarter choice for my clients I care about!
    Thank you!

  5. Thanks so much for getting the word out on this and helping to warn consumers. Hopefully we can stop this before is spreads and good people get harmed with this stuff.

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