Bankrupt Debt Consolidation Company Reminds Borrowers To Shop Carefully

[Jul 10, 2009.]

 

Debt Relief USA Declares Bankruptcy
In late June, Texas debt consolidation company, Debt Relief USA Inc. filed for Chapter 11 bankruptcy and ceased all company operations. In their court listing, the company reported $5 million in liabilities and only $4.65 million in assets. In addition to their bankruptcy filing, the debt consolidation company also acknowledged being the target of several investigations by the federal authorities and state attorneys general. For existing customers and creditors, the company will not be able to negotiate settlements, or remove money, until the bankruptcy proceedings are complete. In short, many of their now former clients will be out of luck, and without the services they've already paid for.

Dangers Of The Debt Settlement Process
A common practice in many debt settlement programs is to build up a sizeable fund to help negotiate a lump sum deal with creditors. Unlike other debt relief strategies, these companies may advise borrowers to cease their monthly payments, and redirect the money to a fund of their own. Eventually, the plan will be to offer this lump sum to an existing creditor in an exchange for a discount on their debts--essentially settling their credit card debt for less than the original balance.

The problem with this method stems from the incredible risks taken by the borrower. First of all, as soon as a borrower neglect's their monthly payment obligations, their credit history will be damaged even further. But most importantly, borrowers run the risk of losing their money if a company goes bankrupt--as was the case with Debt Relief USA Inc. And although the bankruptcy process can result in some reimbursements, it's quite possible existing customers will have seen the last of their money after bankruptcy. One other possibility is that unscrupulous companies may also have other intentions for their client's accumulated funds. Formal complaints and investigations typically shut down these operations in time, but many borrowers can often become victims during the process.

Importance Of Shopping Around For The Right Debt Consolidation Company
As one can see, choosing the right debt consolidation company can be quite critical. Whether the company is involved with debt consolidation or debt settlement programs, there's always the chance a company can go out of business and leave its existing customers empty handed. When comparing different programs to reduce or eliminate debt, it's a good to check online reviews and compare debt specialist in your area. Be especially careful of companies that charge substantial upfront fees as these will be the first to disappear when a company goes out of business.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.