Got an Offer to Settle Your Debts? Be Careful!

“Imagine a small business owner who is getting calls and demand letters and lawsuits from their creditors,” said Steven Zakharyayev, Managing Attorney at Law Offices of Steven Zakharyayev, PLLC, “then this debt relief company comes along and claims they can help. Desperation makes them an easy target.”

Unlawful debt settlement schemes can take many forms but a common one is a third party enticing a merchant into believing that they can resolve their debts at a discounted price when there is no basis for that to be true.

“[The scammers’] marketing preys on small business owners who may be in tough financial situations with ‘pie in the sky’ promises,” Zakharyayev said.

Common red flags indicating a potential fraudulent marketing pitch include requests for upfront payments, down payments, or monthly installments. Third party assistance in and of itself is not necessarily unlawful but the debtors should conduct thorough due diligence on any proposal they receive.

“Consumers can look up the debt negotiation companies and find out if they are legit and how they work by looking up reviews and searching up the company,” said Manny Yosipov, CEO at Advanced Recovery Group.

Debtors should also take care to understand whom it is they are even speaking with. Sometimes the identity of the person calling to address a debt is not clear. Is it a creditor? A collections firm acting on behalf of a creditor? Or a third party with no relationship to the creditor at all? This can become all the more confusing when more than one communcations channel is being used.

“The amended FDCPA allows debt collectors to use newer technologies, such as email and text messages, to communicate with consumers regarding their debts, subject to certain limitations, which protect consumers against harassment or abuse,” said Yosipov.

Meanwhile, Zakharyayev emphasizes the importance of creditors informing clients about the types of communications they might receive from third-party scammers and the unrealistic promises these scammers may make to settle their debt. Merchants should be aware that debt settlement companies often charge significant fees to settle debts that merchants could likely handle themselves.

“Businesses and their customers are usually better off in the long run if they communicate and are transparent with their financial records,” said Zakharyayev. “Once the debt settlement companies get involved, the situation gets more complicated and ironically less likely to settle.”