Debt Settlement Firm Busted By Feds Finally Settles Charges, Goes Bankrupt

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How’s this for ironic? Debt Relief USA, a debt settlement company that was supposed to help consumers get out of credit card debt, has itself gone belly up, filing for bankruptcy protection.

But that’s not all.

Debt Relief USA had been accused by the Federal Trade Commission of generating millions of dollars in ill-gotten profits. The company allegedly lured people into paying thousands of dollars in upfront fees, and then never actually reducing those clients’ credit card bills. In fact, the feds say that in many cases, Debt Relief USA left its clients even deeper in debt.

Now comes word from the FTC that Debt Relief USA has settled the FTC charges. As a result, the company is permanently banned from marketing any kind of financial products or services whatsoever. The company’s principals were also hit with a $20 million judgment.

That’s the good news for consumers. The bad news, from a justice standpoint, is that consumers won’t likely recoup a dime of that money from Debt Relief USA. Why? Since the company went bankrupt, it has been excused from paying that multi-million dollar judgment.

On a brighter note, if authorities find out the financial information the company gave the FTC wasn’t true and accurate, the full amount of the judgment will become due. Also, through settlement of a separate action brought against Debt Relief USA by the Attorney General of Texas, consumers did get $3.7 million in refunds from the company’s bankruptcy estate and more money will be distributed soon.

Overall, this case shows us why it’s not a good idea to fall for someone promising something “too good to be true.” In this instance, according to the FTC, Debt Relief USA engaged in deceptive practices by promising consumers that the company could eliminate 40% to 60% of their credit card debt and be out of debt in two to four years. Unfortunately, those promised results very rarely materialized.

High upfront fees are just one reason to stay away from debt settlement companies. Here are other reasons to avoid debt settlement firms.

Read the official FTC press release.