Credit companies, scammers offer out for bankruptcy

The ads are everywhere — on the Internet, in your e-mail and on the radio.

“Secret program the credit-card companies don’t want you to know about.”

“Eliminate 75 percent of your debt without a bankruptcy.”

“Cut payments, get out of debt and save.”

A free lunch always sounds good, but never better than now with Americans staggering under near-record debt loads and losing their jobs by the hundreds of thousands every month.

It is true that credit-card issuers are increasingly willing to negotiate repayment terms with their customers. And there is a booming cottage industry of providers offering to negotiate on your behalf — usually for a big upfront fee.

After all, you may owe money to half a dozen card issuers, and trying to reach a settlement on your own can be difficult. Don’t expect your creditors to play nice.

But the real sharks in the water are not the companies demanding repayment but the scam artists who fleece people drowning in debt by promising to throw them a life preserver — for just a few thousand dollars more.

“The concern is that many consumers aren’t getting any services at all in the vast majority of cases or not nearly the amount promised,” said Alison Brown, a staff attorney for the Federal Trade Commission.

Such abuses have brought increased scrutiny from regulators and law enforcement.

The industry took off four years ago after federal bankruptcy reform made it more difficult for debtors to shed their obligations, according to Michael P. Kerr, legislative director for the National Conference of Commissioners on Uniform State Laws. The group is appointed by the nation’s governors.

“Debt settlement really popped up into existence in 2004-05, and states are just now adjusting to the mass of market participants,” Mr. Kerr said. “There are some completely illegitimate players out there.”

Keith Nelms and his debt-settlement firm, Allegro Law, were sued by the state of Alabama last month for fraudulent practices. The firm was accused of operating one of the biggest debt-settlement schemes in the country, operating in all 50 states and collecting millions of dollars from 15,000 customers. Prosecutors charge the company pocketed hefty fees yet did nothing to help its clients.

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