Abusive and illegal conduct by companies claiming they can settle your debts in return for up-front fees is not the stuff of urban legend. Such conduct is a nightmarish reality for thousands of people in Texas and across the country who have been victimized by it.

If you are under stress because debt collectors are after you, try to stay calm and consider your choices carefully. Rather than seeking an illusory quick-fix through a dubious debt settlement agency, consider talking with a bankruptcy attorney to explore a full range of debt relief options.

This article has two purposes. The first is to discuss the dangers of dealing with debt settlement companies. The second is to describe the role of reputable law firms in genuinely helping people develop viable debt relief plans.

FTC Action on Upfront Fees

In recent years, federal consumer protection agencies have received a torrent of complaints from individual consumers about debt settlement companies. Such companies are notorious for perpetrating scams to victimize debt-ridden consumers. Some of the companies may even be owned by the credit card companies that hold much of the debt.

One of the most frequent complaints is about companies that demand fees up front in exchange for debt reduction services that often are not delivered.

Many consumers pay the upfront fees, on the understanding that a debt settlement company would take over the responsibility for making payments on the debt and, in the process, also reduce the debt.

The premise is that debt can be reduced because the debt relief company will negotiate with creditors to bring down the amount owed in return for making payments.

In practice, however, many companies take the upfront money, but do little or nothing to actually make payments or negotiate on behalf of their customer/victim.

In October 2010, the Federal Trade Commission intervened with rules intended to address these abuses. Under the revised rules, for-profit debt settlement companies that use telemarketing to sell their services are not allowed to collect upfront fees from consumers until after they have actually negotiated a settlement.

In addition to the FTC rules, a number of states ban the collection of upfront fees.

Beware of Loopholes

The restrictions imposed by the FTC and state law on the collection of upfront fees by debt settlement companies are clear. But the debt settlement industry is always looking for loopholes to get around the law.

One way they are trying to do this is by switching their sales efforts from telemarketing to Internet marketing. This does not necessarily mean those efforts are legal, though, if at any point a debt settlement firm uses the phone to communicate with a consumer that it has signed up as a client.

This is because, as soon as a debt settlement company uses the phone to communicate with a customer or potential customer, the company becomes subject to FTC rules.

Another tactic that debt settlement companies use to try to get around the law is using "runners." These are people who solicit potential clients trying to get them to visit a debt settlement company’s office to sign up for the company’s services.

Perhaps the most egregious attempt by the debt settlement companies to sidestep the law is seeking to sell a host of new, bankruptcy-related services. These can include the preparation of bankruptcy forms and the delivery of bankruptcy counseling.

Some of the debt settlement firms have even enlisted large law firms to market their services through websites and e-mail.

Wolves in Shepherds’ Clothing

Attorneys general in several states are contesting this unholy alliance between large law firms and debt settlement companies.

A consumer who signs up for debt settlement services through an attorney may be led to believe that he or she is actually getting a lawyer on his or her side. The problem is, if these consumers only signed up for debt settlement services, they can get caught without legal representation.

Doug Davis, an assistant attorney general in West Virginia, describes how this misleading practice takes advantage of consumers. "They think things are being taken care of," he said. "Then, they get the knock on the door from the deputy sheriff saying ‘You’ve been sued.’ They thought they were paying for a lawyer to handle all of this and of course they’re not."

Instead, the fees the consumer paid to the debt settlement company may have already disappeared – even though no legal services were provided.

West Virginia is one of the states that have sued law firms who engage in this type of behavior. Such firms are like wolves who have dressed up as shepherds in an attempt to get at flocks of vulnerable consumers struggling with unsupportable debt.

Attorneys and Fiduciary Duty

Don’t let a few bad-apple wolves prevent you with connecting with an attorney who can help you resolve your difficulties with debt, perhaps through a consumer bankruptcy. After all, attorneys are regulated by the bar and have a fiduciary duty to act in the interest of their clients.

Just make sure the attorney you are talking to is not on the payroll of an unscrupulous debt settlement company.