Debt Consolidation Headaches

Many Americans have turned to the fast-growing Debt Counseling industry over the last decade to help solve their debt problems. Debt Counseling companies attempt to improve people’s financial situations by working-out reduced payments with their individual creditors and/or consolidating their debts into one payment.

On a weekly basis for as long as I have practiced consumer bankruptcy law, I’ve heard horror stories from my bankruptcy clients of Debt Counseling relationships that have gone bad. Common complaints that I hear include: Creditors included in my client’s debt consolidation suing them for collection (even though they had been making timely monthly payments to the Debt Counseling company); mismanagement of the funds paid to these companies; credit report scores plummeting; and even fraud and class-action lawsuits filed against these companies.

Since most people consider the filing of bankruptcy a last resort, a large number of my clients over the years have pursued debt consolidation before coming into my office. In all the time I’ve been practicing, I’ve yet to meet anyone who has had a positive opinion of the Debt Counseling company they’ve used. In fact, I’ve actually never met or even heard of anyone who debt consolidation has sucessfully worked for.

According to a recent article, the root of the problem is that there is next to no government oversight of Debt Counseling companies. In fact, there’s NO federal regulation of debt counseling services whatsoever, and only 17 states have specific regulations to govern debt counseling. Thus, a lack of fear of legal recourse has allowed these companies to act and perform in many instances unethically and without regard for their clients who they are supposed to be helping in a difficult time.

While I obviously personally can’t endorse the process, if you’re considering consolidation of your debt with a Debt Counseling company, please refer to this list of suggestions to help you avoid the irreputable companies and find the decent ones:

Additionally, for a list of Debt-Counseling companies that consumers have filed complaints against, please see:

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