Recently there has been a lot of scuttle about the debt settlement industry, and for the most part rightfully so. The industry in the past has been marred with scam companies whose only interest was making a fortune fast, off the backs of people desperately seeking help.

Seeing this, the Federal Trade Commission came up with a set of rules and regulations that came into effect October 2010, regulating how a debt settlement company could operate. Their final rule which among other things, prohibits any debt relief company from collecting upfront fees. It is important to note that the rule covers attorneys who offer debt settlement. They noted that it was important to keep the rule covering law firms as well as companies who partner with attorneys.

Want happened next is to be expected. A flood of companies looking to be able to continue to charge advance fees joined with law firms to act as a front for the debt settlement company. They then devised a loop hole to be able to continue to fleece their customers of money. Instead of charging their settlement fees upfront, they instead charged a hefty retainer and then a monthly legal service fee. This is all on top of the percentage they charge for actually settling the debt.

There are some fundamental problems with this practice and let me explain. First of all, anyone who actually takes the time to read the enrollment documents will see that these law firms are not actually representing you for anything more than negotiating your debt. Well heck it does not require a law degree to negotiate debt and by no stretch of the imagination is it a legal matter.

Secondly, not only are they only representing you for negotiating the debt, but in fact they will not represent you in court what so ever, unless you decide to pay them more money. Many will claim that they send letters of representation to all of your creditors and that will stop the collection calls. I can tell you that this is not true. Not only is it the original creditor's legal right to call you, but sending them a legal letter such as that will typically force them to take you out of collections and immediately put you to their legal department for a possible law suit. Because of this, smart settlement companies do not send these letters to all the creditors or else you would see law suits left and right.

Another tactic they use to convince people into singing up with them is to say that going with a law firm is the only way to protect you when the creditor sues. Let me first say that although it is possible for a creditor to sue you, it is more of the exception than the rule as this process costs them money and time and often gives them nothing in return. If there is nothing for them to go after then what's the point. Secondly, having a law firm settling your debt in no way lessens the risk of being sued and can, if they send out letters of representation, increase those chances. Remember from what I mentioned before that in the event you are sued they will not represent you so you're essentially left holding the bag. The fact is that if a creditor attempts to sue you, it is not the end of the world. Any debt consolidation company can still work with the creditor and arrange a settlement before the cases reaches the court.

Keep in mind that the reason a creditor sues it is usually to pressure you into contacting them and working out a settlement. Having you pay back a portion of the debt is typically in their best interest rather than dragging the thing though the court system, where they are not guaranteed to get a dime.

Another big misconception is that your case is being handled by attorneys. Many of these settlement law firms will give you the impression that your case is being reviewed by and lawyer and that those attorneys will be contacting your creditors to work out the settlements. Some might even tell you that attorneys can get better settlements for you than debt settlement companies.

The truth is that in most cases, your file has never even been looked at by an attorney. They farm out all of their services to a debt settlement company who handles the entire back end. In most if not all cases the client never once spoke to an attorney regarding their case. This essentially means you are paying for legal services that you are not actually receiving.

In a current class action law suit against one of the largest of these settlement law firms, one client claims that they did receive s summons from a creditor and after sending it over to the law firm they actually received a response stating the client had not paid the law firm to answer a law suit but instead to simply manage and negotiate debts. In this case the client claims that not only did the attorney not assist with answering the suit, but never contacted the creditor to arrange for a settlement or payment program.

The problem has gotten to the point where many State Attorney Generals are now actively suing debt settlement lawyers who are taking fees in advance after receiving numerous complaints to the offices. The Illinois State attorney states in a law suit that debt settlement law firms claim that a national law firm's debt settlement program is better than debt settlement with a non-law firm, without any basis for such representation.

If you're struggling with unsecured credit card debt and you are looking for debt consolidation programs to help you deal with the situation, make sure you are working with a company that does not charge their fees until they settle. It is even better to find a company that bases their fees off of the amount of debt they save you, not your total debt amount. This will give them the incentive to settle for the lowest amount.

It is also important to have the company review all of your options so that you have a clear understanding of what is out there and how each one of those options will affect you. Debt settlement is not for everyone and is considered a hardship and you should explore all available options before coming to a decision.