These schemes promise to reduce a consumer’s debt 50% or more by enrollment in a debt negotiation program. Con artists convince victims that creditors will cease pursuing repayment.

In fact, collection efforts not only do not stop; they often become more relentless. In reality, these plans seldom if ever lessen debts, and they often inflict severe harm on borrowers, sometimes forcing them to file for bankruptcy.

How the scam works:

Credit “counselors” claim they have unique alliances with creditors, and will use these special relationships to negotiate debt for a fraction of the amount originally owed.

Debtors are told to suspend making regular payments, and instead to send funds to the debt management firm—often a for-profit firm posing as a friendly non-profit organization—that claims it will deposit the money into a “trust” account dedicated to paying creditors.

Counselors promise they will use their clout to halt annoying calls and letters from creditors. Debtors are thus duped into believing the advisors are applying the trust account funds to pay their now-reduced outstanding debts.

In reality, the counselors first divert hundreds of dollars as fees, which they do not always disclose. Consumer payments are neither applied to the trust accounts nor sent to creditors, until these fees are paid in full.

Consequently, creditors often receive nothing for months and pile on late fees and penalties and may boost interest rates. Many borrowers are shocked to discover that their debts actually increase after enrolling in these programs. Often, unpaid creditors pursue collection more vigorously, and may sue debtors who have defaulted.