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Debt Adjusters Frequently Violate the Georgia Debt Adjustment Act

In our experience, debt adjusters frequently violate the Debt Adjustment Act in the following ways:

  • Charging more than 7.5% of the amount distributed monthly to creditors for debt adjusting services;
  • Failing to distribute the consumer’s funds to his creditors within 30 days of receipt of the funds.

You, the consumer, also have the right to file a private legal action against a debt adjustment company that has overcharged you or mishandled your account in violation of the Act’s provisions. Not only is the company obligated to refund all fees, charges or contributions you have paid, but through this action you may seek an additional restitution of $5,000.00.

If you have done business with a debt adjuster, give us a call today! You may be entitled to recover money for the violation of the Act.

Don’t Fall Victim to Illegal Debt Settlement Companies

Lately, Debt Settlement companies have become very prevalent in the debt adjustment industry.  These debt settlement companies promote and advertise themselves as an alternative to bankruptcy, a faster way to get out of debt, and a better alternative to traditional debt management plans.

Debt settlement companies will instruct the consumer to stop paying their unsecured creditors, and instead divert that money to the debt settlement company, where the debt settlement company will often collect its fees upfront.  As of October 27, 2010, the Federal Trade Commission made the practice of the debt settlement companies collecting their fees upfront illegal, although many of these unscrupulous companies continue to do so.

How the scheme typically operates:  Once the consumer signs a contract with the debt settlement company, the debt settlement company instructs the consumer to stop paying his/her credit card bills, and the debt settlement company will begin to debit the consumer’s checking or savings account on a monthly basis.  The consumer’s money is held in an account under the control of the debt settlement company.  Once there are sufficient funds in the account, the debt settlement company will, ostensibly, contact the consumer’s credit card companies and negotiate a lump sum settlement of the credit card debt for some amount less than the full amount owed.

What Debt Settlement Companies Don’t Tell You

What debt settlement companies do not tell the consumer is that when the consumer stops paying his/her credit card bills, the credit card company will often file a debt collection lawsuit against the consumer seeking to collect the amount owed.  Alternatively, many times the credit card company will charge off what it considers to be uncollectible, which is then “bundled” with other charged off credit card accounts into “portfolios” which are then sold to junk debt buyers.  These junk debt buyers will often file derogatory credit entries on the consumer’s credit reports, make harassing collection calls which frequently violate the Fair Debt Collection Practices Act, and often file debt collection lawsuits against the consumer. In the event that a debt settlement company actually settles a credit card debt for the consumer, the consumer will most likely be issued a Internal Revenue Service (“IRS”) 1099-C, which requires that the consumer report any forgiven debt over $600 as income on his/her federal tax return!

Don’t fall for it!  Debt settlement is NOT a viable alternative to bankruptcy, and is in fact ILLEGAL in the State of Georgia.

If you have fallen victim to a debt settlement company, contact Hurt Stolz, P.C. today!

The Georgia Debt Adjustment Act (OCGA §§ 18-5-1 et seq.) is a law enacted to protect Georgia consumers from unfair, deceptive and illegal practices in the debt adjusting business.

The Georgia Debt Adjustment Act states that:

“Debt adjusting” means doing business in debt adjustments, budget counseling, debt management, or debt pooling service or holding oneself out, by words of similar import, as providing services to debtors in the management of their debts and contracting with a debtor for a fee to:

  1. Effect the adjustment, compromise, or discharge of any account, note, or other indebtedness of the debtor; or
  2. Receive from the debtor and disburse to his or her creditors any money or other thing of value.”

OCGA § 18-5-1.

When a company, person or other entity offers to perform debt adjusting services for a Georgia consumer, the company, person or entity is restricted to only entering the consumer into a Debt Management Plan, or DMP. A legal DMP should function as follows:

  • The debt adjuster should engage the consumer in credit counseling to determine if a DMP is the most effective way to handle the consumer’s financial problems. A DMP is not always the solution. Sometimes the consumer’s financial problems may be too extensive, leaving only bankruptcy as an option.
  • Once it is determined that a DMP would benefit the consumer, the debt adjuster should work with the consumer to structure a budget and calculate one monthly consolidated payment for all of the consumer’s unsecured debts.
  • The debt adjuster should then contact the consumer’s DMP for the repayment of his debts and work with the creditors in determining the amount to be paid by the consumer each month and the interest rate to be charged while the consumer remains in the DMP.
  • The consumer should then begin to pay one consolidated monthly payment to the debt adjuster for all of the consumer’s unsecured debt. The debt adjuster then distributes the payment to each of the consumer’s creditors within 30 days of receipt of the consumer’s funds.
  • The debt adjuster’s fees for performing these services are restricted by the Georgia Debt Adjustment Act to 7.5% of the amount distributed monthly to the consumer’s creditors. For example, if the consumer pays $100.00 each month into the DMP, then the fee that the debt adjuster can receive can only be $6.97, leaving $93.03 for distribution to the consumer’s creditors.
  • The formula is: Total Amount Paid to DMP ÷ 1.075 = Amount to Be Distributed to Creditors.

In addition, this law requires that:

  • A separate trust account is maintained for your funds, along with certain insurance coverage, and audited annually.
  • Copies of these audits and insurance policies are filed annually with the Governor’s Office of Consumer Protection.