Allegro is one of many large debt settlement companies that skirt consumer protection laws. According to Alabama Attorney General Troy King, Allegro violated the Deceptive Trade Practices Act and the Sale of Checks Act.

Owner Keith Anderson Nelms plead guilty to violating multiple rules of professional misconduct. His Alabama law license was subsequently suspended.

Allegro failed to obtain a license from the Alabama Securities Commission, yet offered debt settlement services to Alabama residents. Approximately 175 of 15,000 total clients were Alabama residents.

Allegro made false, deceptive and misleading claims to customers in regards to its services. One such claim was that since Allegro was run by an attorney, that they would be able to achieve superior results over what other debt settlement companies could provide. The court came to a different conclusion:

Defendant’s debt settlement program failed to reduce consumers’ debt in most cases, negatively affected consumers’ credit ratings, and subjected customers to increased lawsuits and collection activities by creditors. It was deceptively unclear to Allegro consumers that Allegro Law would collect its fees in full before any funds were used to pay creditors.

In fact, the court found that instead of providing legal services as claimed, Allegro instead referred all cases to a third party that did not practice law, yet made claims to the contrary. This was a violation of the Deceptive Trade Practices Act.

These are the summary findings of the court in regards to Allegro:

(1)consumers were led to believe that Allegro Law, LLC was a law firm providing legal services, when in fact, consumers were not provided legal services; (2) consumers believed that Allegro was located in New York, when it was located in Prattville, Alabama; (3) consumers were not aware that they would be charged a fee of 16 percent of their total debt enrolled in the program and that 100 percent of their monthly bank drafts would go toward payment of that fee until the fee was paid in full; (4) consumers were deceived about the effectiveness of Allegro’s program and the certification of Allegro’s services; and (5) consumers were directed to stop making payments to creditors, which resulted in increased interest rates, late fees, further damage to their credit ratings, and additional and increased collection activities by their creditors.

Allegro clients are unlikely to see most of their money. It is unlikely that the court appointed receiver will receive substantially more than the $12 million seized so far. Splitting that $12 million between 15,000 unhappy customers would result in an average refund of $800. Once you count the legal bills of the receiver, the average could be far less.

For information about filing a claim for a refund, view the contact information for the court appointed receiver. Make sure you share your story so that you can warn others away from a similar fate.

Refund checks began going out December 30, 2009 and most customers whose claims were approved received their refunds by the second week of January. Refunds were far less than what people were hoping for.

It is a real shame that these families were victimized in their time of need by a company that misrepresented its capabilities. These families were promised savings of well over 50% on their debt. Instead, they lost 75% or more of their deposits due to fraud.

From a consumer protection perspective, I really feel for these families. I know that they have been robbed in the worst way, and that many of these families will not be able to recover from this financial blow anytime soon.

One difficult part is watching customers believe the outrageous claims made by Hess Kennedy and other debt settlement companies. The claims they make are often in violation of several state and federal laws.

However, the most difficult part of this entire situation is knowing that these families could have avoided the loss if they had simply checked the reputation of Hess Kennedy before signing a contract. If they had, they would notice that Hess Kennedy had an “F” rating with the Better Business Bureau.

I can promise you that if you choose to do business with a firm that has an “F” BBB rating, you are playing with fire. It is the government’s job to protect you from rogue companies, and they reacted by shutting down the Hess Kennedy and issuing refunds. However, tens of thousands of customers were still victimized. It is your responsibility to protect yourself, because government protections are not enough.

Therefore, please let the pain of these victims serve as a reminder to verify the claims of any company prior to doing business with them. For one, making sure the company is a bona fide charity is one helpful step. Most importantly though, see what their rating is with the Better Business Bureau. I personally shy away from any company with less than an “A-” rating.

A substantial number of companies that provide for-profit debt relief companies as well as some nonprofit charities are AADMO members. Many of these organizations will either join another trade association or become independent.

No reason has been provided for AADMO disbanding. AADMO has not issued a press release to confirm these reports.

AADMO reportedly is not renewing memberships for its members as of November 1, 2009. Members up for renewal after this date have begun to receive written notifications that AADMO is no longer renewing its memberships.

Many creditors that view trade association membership favorably will also have to make adjustments to account for the breakup of AADMO. Any AADMO members should refer all questions  to AADMO to receive clarification on their membership status.

* This story may be updated as more information is obtained.

In 2007, credit card portfolios were selling for a 10-year high of 14 cents. According to Collections and Credit Risk Magazine, these prices have dropped to as low as 4-7 cents on the dollar. These are the reasons behind the drop.

Collection Rates Plummeting

With unemployment rates exceeding 10% in many areas, vast numbers of cardholders are unable to manage their debts. Whatever money they do bring in from unemployment or from their spouse usually goes toward necessities such as food, utilities and transportation.

Some are facing foreclosure or eviction from an apartment. The result is that unsecured credit card debts are among the last bills to be paid. For collection agencies trying to collect on this debt, they really are scraping the bottom of the barrel.

Financing Options Drying Up

Collection agencies often depend on financing in order to make large portfolio purchases. The tightening credit markets make such financing more difficult. Few debt collectors have the assets necessary to fund the purchase of large portfolios without benefiting from outside financing.

Fewer financing options means that the market for charged off debt has fewer buyers. As a result, prices have dropped by more than half.

Consumers Will Not Benefit

It goes to reason that debt settlement companies may try to exploit these lower numbers to promise lower payoffs. However, there is no evidence that debt collectors are lowering their settlement offers.

The trend has actually been the reverse, with many debt collectors requiring much higher payoffs than they did just a few years ago. Offers of 30% payoffs have almost disappeared. Most payoff offers are over 60% of the balance.

Consumers should understand that the lower acquisition costs for defaulted debt are offset by lower collection rates. In other words, their costs are coming down at about the same rate as their revenues. Don’t expect them to pass on any savings because there aren’t any!

These are not all necessarily for everyone. In fact, you will probably only find that one or two of these methods will apply to your situation the best.

1. Sell an Asset

This may sound like a non-option, but selling an unneeded asset can do wonders to your finances. Consider that extra vehicle that you keep around. Sure it is convenient to have a truck for those 2 times a year you need to haul something. Once you factor in the license fees and insurance costs, you still might be talking about a few hundred dollars a year just to keep it on the road. It might be much cheaper to rent or borrow a truck when you need it.

A boat also a common off-limits asset. I see people frequently that refuse to give up their boat even though they can barely afford to put gas in it. Remember that boats are notoriously expensive to maintain. Also, keep in mind that the 2 best days in a boat owner”s life are the day you bought it and the day you sold it! Extra cash can be used to pay off your higher interest debt in a lump sum payment.

2. Increase your Payments

If your credit card minimum payment is $30, chances are $25 of it is interest. You don’t have to be a rocket scientist to know that it takes a long time to pay down a $1,000 balance at $5 a month!

Just an extra $5 a month can allow you to repay the debt in half the time. Keep in mind we are still talking in terms of years to repay it at this rate. Sending an extra $30 can allow you to repay the debt in a little over 2 years. This option assumes that you have extra money each month, but may sometimes lack the discipline to send more than minimum payments.

3. Work More

A second job can burn you out. So can overtime. Temporarily increasing your income in order to find more money for repaying debt can give you additional resources for eliminating your debt quickly. The extra stress from working more may be offset by the sense of relief you get by paying off a debt.

The best additional work is one that provides you with reasonable pay and satisfies some of your social needs. Bartending and waiting tables are often overlooked, but they provide some of the higher earning part-time jobs available. Best of all, these pay the most during the hours when you are probably away from your regular job anyway. Thursday through Saturday nights tend to carry higher tips, so use your time wisely. In addition, you can have fun on the job if you find the right work environment. Carefully choosing a schedule can help you limit any impact on your current job and any family or friends.

4. Complete Credit Counseling

Credit counseling is more than just helping you budget and manage your money. The common stigma that people place on credit counseling is that it is just for people that cannot manage their money. The truth is that over half of credit counseling clients were able to manage their money, but they fell victim to life changing events that made debt payment difficult.

Credit counselors also have a pretty effective tool for eliminating debt. It is called a debt management plan and it utilizes a special program available through major credit card companies where you can get a break on interest, fees and payments.

Most people that enroll in a debt management plan are able to repay their debt by making lower payments than before. This may seem counterintuitive, since repaying debt faster typically means that you have to increase your payments. However, these programs are so effective because participating creditors lower your interest rates by so much that your finance charges are often less than half what they were before. Where before you saw $5 of your $30 minimum payment go toward principal, a debt management plan could allow for your finance charges to drop to only $10 a month. Even if they reduce your payment from $30 to $22 on the account, you have just increased your principal payment to $12 from $5. Under the program, your payment also stays the same, so that even though your balance is dropping you keep sending in the same amount. Every single month, your finance charges end up less than the previous month and your principal payments increase, much like they do on an installment loan. That way, you can normally eliminate your debt in 3 to 5 years while making lower credit card payments.

5. File for Bankruptcy

At some point, you might need to consider throwing in the towel. Bankruptcy is an ugly option and it has all sorts of public humiliation often associated with it. It even has rather high costs, since most attorneys charge at least $2,000 to help you file for bankruptcy.

Still, bankruptcy may need to be one of your options. The biggest sign that you might need protection from your creditors is if you have several creditors in which you owe very large balances that are threatening legal action. Since it is illegal to threaten legal action without a reasonable expectation to follow through with it, you should consider such threats to be credible.

Bankruptcy can give you bad credit for up to 10 years. However, you might need to consider it as an alternative to judgments and garnishments that may be possible depending on your state of residency.

Non-Options for Eliminating Debt

Debt settlement is almost always a non-option. Companies that offer debt settlement services do nothing to shield you from legal action. They also pay themselves several thousands of dollars before they ever begin working on your behalf. If you were looking for help eliminating debt, then you just created another creditor for yourself by hiring a debt settlement company. Furthermore, every time you do settle on a debt, understand that the so called savings is considered a gift and is generally taxable as income. If your income is $40,000 a year and you save $5,000 by settling a debt, you will generally be taxed as if you earned an additional $5,000. Depending on your state and federal tax rates, this could result in up to $2,000 in additional taxes!

Credit repair is also a non-option for eliminating debt. Such companies promise to make these things just go away, but the only thing they do is file frivolous disputes to the 3 main credit bureaus every single month. These frivolous disputes are discounted as such by the credit bureaus, and they are ignored. Meanwhile, you keep paying them for something you could easily dispute on your own. If you through this money toward your debts rather than throwing it away, you could make your debts disappear and improve your credit.

The biggest mistake people make is to borrow money to eliminate debt. That’s like asking for a torch to put out a bonfire. You cannot eliminate debt by taking on more debt. This is why approximately 70% of homeowners that used home equity loans or a cash out refinance loan to repay credit card debt ended up in worse shape in as little as 2 years.

To eliminate debt, consider taking on one or two of the top 5 methods revealed above. The sooner you take action, the sooner you see results!

What is Debt Relief?

Debt relief is the most overused and overly confusing term for getting help with your debt. There are several types of services that routinely claim to offer debt relief:

• Credit Counseling Organizations: These nonprofit agencies help you evaluate your credit and financial needs while finding a solution for dealing with debt. They can help you develop an action plan that may have you pay off debt on your own. They can also assist through a debt management program, in which many of your creditors voluntarily offer lower monthly payments, lower interest rates and suspended fees.
• For-Profit Debt Management Companies: These companies utilize sales representatives to enroll you into a debt management program whether you need it or not. Some programs are still of good quality, but the selection process is often questionable and counseling is nonexistent.
• Debt Settlement Companies: These companies make outrageous claims of reducing debts for pennies on the dollar. They tell you to stop paying your creditors while doing nothing to help you avoid imminent legal action. Fees and tax penalties, combined with additional interest can end up costing you nearly all of your expected “savings.” Nearly all debt settlement companies carry “F” ratings with the Better Business Bureau.
• Bankruptcy Attorneys: These firms can help you obtain relief from creditors that are pursuing legal action. Bankruptcy is not for everyone, and you will  still need to complete bankruptcy counseling with a credit counseling or debt management company prior to being able to file.

Why is Debt Settlement a Scam?

There are many reasons why you should never hire a debt settlement company:

1. Debt settlement companies cannot do anything more than you can do yourself. Most debtors could negotiate reasonable settlements for past-due debts on their own by writing letters. The internet is overflowing with templates and sample letters that you can use to write your own settlement requests.
2. Debt settlement company fees tend to run well into the thousands of dollars. Many people pay more in fees to a debt settlement company than they would have in attorneys fees and court costs for a bankruptcy filing.
3. You have no recourse if a debt settlement company steals your money. Credit counseling organizations pay your money out every single month. Bankruptcy proceeds are distributed through a court-appointed trustee. Debt settlement companies however pool your money and earn interest on it while charging fees even when they take no action. Numerous debt settlement companies have been shut down due looting of client funds and overall failure to provide the promised services.
4. Debt Settlement companies have “F” ratings with the Better Business Bureau. They simply cannot deliver what they promise.

If you can afford a smaller payoff on charged-off debts, then negotiating your own settlements would be wise. If you cannot afford to deal with charged-off debt, you may benefit from speaking with an attorney regarding protection from creditors. If you still owe your original credit card companies but cannot afford the monthly minimum payments, then credit counseling would be your best option.

We reviewed several prominent debt settlement companies to see what their track records are. Understand that in no way can we fully vouch for or warn against doing business with a debt settlement company. In fact, all we are doing is revealing public information about these companies and quoting their claims. In other words, we encourage you to investigate any debt settlement company fully before doing business with them.

We do offer a word of advice. The vast majority of debt settlement companies that we researched did not advertise using their real names. Most were not BBB Accredited. Even those that were BBB Accredited did not include the link to their BBB reliability reports, and for good reason.

Nightmare Debt Settlement

Beginning with some of the worst-case scenarios, these eye-opening accounts will definitely make you think twice before sending money to a debt settlement company:

• Hess-Kennedy: Several companies operated by Laura Hess did more than just fail to meet their false promises. $20 million in client deposits were actually transferred out of these companies. The situation was so bad that the State of Florida had to step in to seize the assets of the companies and arrange for partial refunds of clients. Capital One forgave the debt of former cardholders that were clients of Hess Kennedy. Instead, the courts will provide a payment of $1.825 million from the remaining assets of Hess Kennedy. Florida Attorney General Bill McCollum approved a settlement with Hess Kennedy that closed the companies, turned over remaining assets to Receiver Daniel J Stermer and ultimately led to a 5-year disbarrment for Laura Hess. Hess Kennedy of course had an “F” rating with the Better Business Bureau at press time.
• National Consumer Council: This debt settlement company was shut down by the Federal Trade Commission in 2004. The company claimed to be a tax-exempt nonprofit, but this was a false claim. According to court records, 98.6% of clients failed to complete their debt settlement program. Only 1.4% of the 44,844 clients were successful. The company’s court records show that only 1.4% of the consumers who signed up for the program ever completed it. Clients that dropped out of the program early paid an average of $1,780 in fees, money that could have been better used to repay creditors. National Consumer Council held an “F” rating with the BBB.
• Homeland Financial Services LLC: Another low was reached by this debt settlement company. As commonly occurs in the debt settlement industry, this firm began doing business under several new names once their BBB report became full of complaints. An injunction was filed in U.S. District Court. The partners subsequently agreed to close their businesses and pay fines totalling $110,000. Their BBB rating was of course an “F” rating. This company appears to be unrelated to another company in Colorado by the same name.

The One “Shining Star” of Debt Settlement Companies

In 2007, Debt Shield of Columbia, Maryland received the Torch Award for Marketplace Excellence through the Better Business Bureau of Greater Maryland. They were also a nominee for the International Torch Award. Debt Shield was the first debt settlement company to be considered for the award. To our knowledge, Debt Shield has the best reputation that we can find among debt settlement companies. And yet, their BBB rating was “F” at press time.

If you are looking for a recommendation for debt settlement companies, you will not receive one from us. Debt settlement companies profit handily by doing exactly what you could do on your own without paying thousands of dollars in fees.

Common Attributes of Debt Settlement Companies

Debt settlement companies have faced numerous regulatory challenges and legal actions due to widespread misrepresentation of their services. These are the most common problems, misrepresentations or false statements that have been challenged by regulators:

• According to the State of California, “The Consumer Protection Law Center failed to negotiate structured debt repayment plans on behalf of certain clients.”
• The State of Florida accused “Hess of signing thousands of credit card debtors up for debt management services and claiming the law firm would provide legal services to cancel debts for pennies on the dollar.”
• The Milwaukee Journal Sentinel reported that “On the advice of the company, the Jewells and other consumers stopped paying their creditors, with the understanding that the company would go to court and force a better deal. When that didn’t happen, the credit card companies sued. The Jewells said the Consumer Law Center told them they didn’t have to come to court, where a lawyer provided by the company would represent them. But no lawyer showed up in court for hearings on Sept. 19 or Oct. 2, and the judge issued default judgments against the couple. Because of the default judgments, the Jewells faced having a quarter of their wages garnished to pay back their debts, Brad Jewell said. They filed for bankruptcy on Wednesday.”
• The Wall Street Journal reported that Hess Kennedy “advised the 63-year-old to stop making payments to his creditors, according to Mr. Bowman. Mr. Bowman paid hundreds of dollars in up-front fees and made regular monthly payments of $249 to Hess Kennedy, but the Coral Springs, Fla., firm never settled any of his debts, he says. By the time he dropped out of the program this summer, Mr. Bowman says, his debt had ballooned to about $20,000, due to interest and late fees, and creditors were threatening to garnish his wages. Finally, he filed for bankruptcy last month.”
• Chase sued Hess Kennedy also on behalf of mutual clients, stating that “Defendants’ conduct is entirely in bad faith and serves no legitimate purpose. . . Defendants’ ulterior goals are to extract fees from card members who should be paying the money to Chase to satisfy their debts and to maliciously harass Chase in an improper (albeit unsuccessful) attempt to coerce the elimination of their clients’ legitimate debts.”

The bottom line is that debt settlement companies cannot do anything you cannot do on your own. They charge a hefty up-front fee and monthly fees even during months when they do nothing more than deposit your payment. When you actually settle a debt, most charge a percentage of the “savings” that can average anywhere from 15-25%. Once you factor in the taxable amount from forgiven debt that is reported to the IRS as well as the accrued interest and late fees, you barely save any money at all.

Another factor to be considered is the nature of debt settlement companies. Many are run by overpaid owners, many of which have questionable credentials and even criminal records. If you really want to settle your debts, find out how you can settle your own debts. A nonprofit credit counseling organization such as this one can show you how, for free. Also consider how late you are. If you are less than 6 months late on your credit card bills, you might want to consider debt management as an alternative to debt settlement.

If you would like to comment about your positive or negative debt settlement experiences, we encourage you to do so as long as you avoid any libelous statements! If you can prove your claim, then please state your case so that others can learn from your experiences. We want to provide a forum for reviews of your debt settlement companies.

More and more people with significant debt are choosing debt settlement as a way to eliminate their consumer debt and start anew. It is a more attractive option than Chapter 13 bankruptcy. However, many consumers forget that debt settlement takes time. In this time, a consumer can see his/her debt increase rather substantially.

The majority of debt settlement plans involve putting money that usually goes to creditors in a side account. This is done until 50% of the total owed to creditors is accumulated, then the consumer has leverage to negotiate with his/her creditors and effectively settle the debt. However, as mentioned, the consumer will have stopped paying creditors during the time it takes to gather this 50%.

Depending how much one can save every month and the size of the debt, it can take anywhere from 12 months to 3 years to save the necessary 50%. As a result of nonpayment for this time, creditors will add all sorts of penalties to the balance of the debt. So, as you save money in the separate account in the hopes of getting rid of your debt altogether, your debt is actually growing all the while.

So, a major key in debt settlement is the amount of time it takes to execute the plan. 18 months or less is a pretty safe time-period. Anything much longer could wind up being very costly.

Another consequence of not paying creditors is their use of more aggressive collection tactics, and the likelihood of lawsuits and wage garnishments. If wage garnishing occurs, this seriously weakens the consumer’s ability to save enough to settle his debt.

When weighing the options of debt settlement and bankruptcy, the consumer needs to be aware of these realities. In fact, if he files for bankruptcy after participating in a debt settlement program for a while, he will be facing a larger debt than he would have if he’d decided on bankruptcy in the first place.

Some may be thinking that debt settlement won’t have as negative effect on their credit score as a bankruptcy would, but that is not necessarily true. Logically, failure to pay creditors rates negatively on your score but not paying any debt in-full, which is the aim of debt settlement, has a seriously negative effect, as well. Also, any amount of unpaid, forgiven debt is usually subject to income tax.

Not only is debt settlement itself a rather risky option, but the companies offering the service are currently facing serious questions about their business practices. The financial-services website Credit.com reports that the number of complaints about debt settlement firms in 2008 is double the number received in 2007. The Federal Trade Commission has noticed this increase in complaints, as well.

Even some major credit-card companies, like American Express, have had enough of these debt settlement companies and do not want to work with them. When it comes to debt settlement, you probably want your credit-card company to be cooperative.

Many of these companies charge rather large up-front fees. These fees can be 10% or 15% of the debt owed. Also, firms may charge a monthly fee. Sometimes, a fee of 20% or 30% of the amount the firm has supposedly saved the client is charged.

Problems are arising because debt settlement firms are promising services they cannot deliver. Several recent cases make claims against these companies that they misled clients about the actual cost of debt settlement plans and how long they would take. As discussed earlier, the length of a debt settlement plan is crucial.

So, what’s the alternative if bankruptcy doesn’t sound that great either? There are several non-profit organizations that offer “debt-management plans.” These plans help consumers slowly, but surely pay down debt and can even score some help from creditors in the form of lower interest rates or waived fees.

However, there have been instances where these so-called “non-profits” haven’t been as not-for-profit as they claimed and were found to be linked to for-profit companies. So, it’s important to make sure that the non-profit you choose to help with your debt is, indeed, legitimate. Being well-informed is a huge asset in the complex world of credit and debt.

Examine your Situation

Having 1 or 2 old debts that you haven’t paid on in at least a year or more might make debt settlement more attractive. So what exactly is debt settlement?

Debt settlement is the act of negotiating a lower, lump sum payoff with a creditor. It is useful for reducing what you owe while closing old accounts.

It is not useful for dealing with several accounts in which you do not have money saved to make large payments. Payment plans are not available with debt settlement, and debt settlement companies that offer such “payment plans” do little more than take what little money you have each month and leave you vulnerable to judgments. Some debt settlement companies have revealed to regulators that their success rates are as low as 2%.

Even if you successfully settle a debt, it will still show up as a black eye on your credit. Your credit report will reflect that you settled for less than the full amount owed, that is, unless you can also negotiate a pay for deletion agreement!

How is Debt Management Different?

Debt management is an actual program in which creditors may offer benefits to enrollees in order to reduce the risk of default. Debt management programs may be able to provide you with a lower monthly payment while still paying your debts off faster.

They do this through lower interest rates on your existing credit card accounts. Participating lenders will, at their discretion agree to lower your interest rates for as long as you stay active on the program. Even though you may be paying less each month, a greater portion of your payments is still applied toward principal rather than finance charges, which helps you eliminate your debts sooner.

Finding Help

If you need help, then consider meeting with a nonprofit credit counseling organization. A for-profit debt management company may provide a good debt management program, but they usually fall short on counseling. In fact, their job is to sell you on enrolling, whether you need such a plan or not.

A nonprofit credit counseling organization can help you evaluate your situation, determine your needs and offer suggestions about options for improvement. If you need to enroll in a debt management program, they can help. Similarly, you might just find that a fresh approach can help you repay your debts on your own.

If Vision Credit Education serves your location, feel free to contact us for a free counseling session. If not, you can still find an agency near you affiliated with the NFCC.