Credit Repair Companies Can Cripple Consumers

The word bankruptcy still carries too much of a negative stigma for many people, even those who are overwhelmed with credit card debt because of an illness or a job loss and stand to benefit the most from it. People associate filing bankruptcy with failure, but if they are in too far over their heads, they could fall victim to a scam that may even claim to be an alternative to bankruptcy.

I understand that the Federal Trade Commission (FTC) says “personal bankruptcy generally is considered the debt management option of last resort,” but too many consumers end up making bad situations worse by being lured into supposed alternatives to filing for Chapter 7 or Chapter 13 bankruptcy.

One particular industry that has been growing in recent years is “credit repair,” with the Better Business Bureau reporting that complaints to BBBs nationally have risen from 133 in 2006 to 711 last year. These companies typically offer to clean up or erase negative information from a consumer’s credit report for a fee. While the Credit Repair Organizations Act was enacted by Congress in 1996 to prohibit companies from charging advance fees before promised results were achieved, an astonishing 97 percent of BBB complainants said they paid the company before any services were provided.

“But you already have the right to have any inaccurate information in your file corrected,” the FTC notes in its warning to consumers about being cautious of claims from these “so-called” clinics. “And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises.”

On Wednesday, I will discuss another alternative that generates a significant number of BBB complaints, and is often advertised specifically as an alternative to Chapter 13.

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