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Beware of Misleading Debt Elimination Schemes and Scammers

Using a debt elimination firm could cause you to end up with a bad credit score, tax lien, foreclosure, or a debt collector at your heels.
hand clicking on an “Fraud alert” key

The promise to wipe out your debt may seem like a dream come true. But the debt relief industry is like all other industries ⏤ there good and bad players.

As with most crisis events, the coronavirus pandemic has prompted scammers to try to take advantage of people’s economic fears to steal their money.

Beware of schemes and scammers that claim your debt can be eliminated, you could end up adding to financial woes.

While many debt relief companies can actually help you, there are some firms that are nothing but scams looking to take advantage of your vulnerable situation.

What is a debt elimination scheme?

Debt elimination scams are illegal schemes that offer to eliminate a consumer’s debt. Scammers create fake documents for unsuspecting consumers to present to their bank, mortgage company, or other lenders in an attempt to satisfy the loans.

Here is an example of fake documents created by debt elimination scammers:

Fraudulent Bankers’ Acceptance Certificate. For a fee an unscrupulous firm may offer you a certificate to present to your bank, claiming this will eliminate your obligation to repay your mortgage, credit cards, or other debt. The certificates look real and often resemble bankers’ acceptance certificates.

A real bankers’ acceptance certificate is a method of payment between banks that is used as a promised future payment. It is accepted and guaranteed by a bank and drawn on a deposit at the bank. Unfortunately, any debt elimination plan based on certificates to present to your bank is just a bunch of smoke and mirrors and doesn’t actually help you discharge any of your debt.

False Documents. Scam debt elimination companies sometimes falsify documents to make you think creditors have agreed to eliminate your debt. And, they may present you with official-looking documents that question the authority of the Federal Reserve and the legitimacy of the United States dollar claiming the “Declaration of Independence” validates their approach.

False Procedures. Scam companies may present consumers with false documents that question the authenticity of financial obligations owed by the consumer. Consumers are duped into believing creditors will either forgive debt or reduce the debt significantly. There are no procedures through the Federal Reserve that eliminate debt for consumers. The Federal Reserve is not involved in any program aimed at eliminating consumer debt obligations.

Debt elimination false claims

Only the government can create money. Another scheme is to tell you that your debts are not collectible because only the government is allowed to create money. When it comes to credit cards they may tell you the card issuer created money when they granted you a credit line. Their logic is since only the government can create money; when you used your credit card, no debt was incurred. Scammers may claim the debt is between the credit card company and the merchant.

Second mortgage debt consolidation. Debt elimination companies may suggest a second mortgage or a home equity line of credit to reduce debt. Remember that these loans require you to put up your home as collateral. If you can’t make the payments or if your payments are late, you could face foreclosure.

IRS will reduce your debt. The IRS has a list of scams to watch out for but one of the most common scams is IRS debt reduction negotiation. Scammers look for tax lien notices to target taxpayers. The scam seems real because there are various advertising channels (mail, radio, internet and television) that promote their services.

The companies request upfront fees in order to get a reduction in the client’s IRS debt. The debt company promises to negotiate a significant reduction in the client’s tax debts. In reality, the IRS rarely accepts a reduction offer unless the taxpayer is near death or unemployable with no assets.

A good place to get tax help is from the Taxpayer Advocate Service. This organization within the IRS helps people get assistance with IRS problems. You can also negotiate more time to pay tax debts by applying for a payment agreement online.

Here are several legitimate tax relief companies that specialize in helping consumers:

  • Precision Tax Relief – Offers a 30-day money-back guarantee if you’re not happy with the service provided during the first month.
  • Anthem Tax Services – Money-back guarantee with no time limit should the company fail to make any change to your IRS tax debt repayment schedule.
  • Fortress Tax Relief – Comprehensive customer service guarantee plus customers with large tax debt may benefit from their hourly-based fee structure.
  • Community Tax – People with lower tax debt may benefit from their services or may even find all the help they need for free through CommunityTax’s online resource library.
  • ALG Tax Solutions – Free taxpayer resources that include online calculators, eBooks, and other useful tools.

Student loan debt relief companies.  Be wary of debt relief companies that claim to reduce or eliminate student loan debt for a fee. Often these companies charge for services you can easily manage yourself. You may be advised to stop paying your loan in order to get it reduced or forgiven. Your credit could be damaged and your loan balance could end up ballooning. You might not get the promised help or your money back. There’s nothing a debt relief company can do that you can’t do on your own.

Here are several resources that can help resolve student loan repayment issues:

Upfront fees

In many states it’s illegal to collect an upfront fee for debt settlement services. It’s a good rule to never pay upfront fees for debt settlement services and question any company that charges a high fee (such as 20 percent of your debt) to settle your debts.

What often happens is that people pay a lot of money without eliminating or reducing their overall debt obligations.

How to Avoid and Report Scam Companies

Living debt-free is a goal of many consumers. Legitimate debt relief companies exist but prior to signing up, check with your state’s attorney general and consumer protection agency to learn about the company’s reputation.

Steer clear of any debt-relief company that asks for fees in advance, before it settles any debt. Research any debt relief company you are considering. Check out the National Foundation for Credit Counseling to find non-profits that create debt management plans in your city or state.

The Consumer Financial Protection Bureau continues to crack down on illegal debt elimination schemes, here are just a few examples:

  • March 2021, the CFPB filed a federal district court complaint against California-based Student Loan Pro, Judith Noh, and Syed Gilani and FNZA Marketing, LLC for violating the Telemarketing Sales Rule (TSR). Student Loan Pro, which operated from 2015 through 2019, provided federal student loan debt-relief services to consumers nationwide. The CFPB alleges that the company charged borrowers the illegal upfront fees to file paperwork on their behalf to access free debt-relief programs available to consumers with federal student loans.
  • November 2020, the CFPB filed a federal district court complaint against Performance SLC, LLC (PSLC), a California debt-relief business focused on federal student loan debt; Performance Settlement, LLC (PSettlement), a California debt-settlement company; and Daniel Crenshaw, the owner, and CEO of the two companies. The companies charged consumers illegal upfront fees by using telemarketing campaigns to convince thousands of consumers to sign up for services to assist them in obtaining loan consolidation, loan forgiveness, or income-driven repayment plans from the U.S. Department of Education (ED).
  • July 2019, the CFPB settled its lawsuit against Freedom Debt Relief, LLC, the nation’s largest debt-settlement services provider. The company agreed to pay $20 million in restitution to affected consumers and a $5 million civil money penalty. The Bureau’s lawsuit alleged that Freedom Debt Relief violated the Telemarketing Sales Rule by charging consumers without settling their debts as promised, charging consumers after having them negotiate their own settlements with creditors, and misleading consumers about the company’s fees and its ability to negotiate directly with all of a consumer’s creditors.

If you think you have been a victim of a debt elimination scam, you can file complaints with:

Federal Trade Commission
U.S. Department of Education
Consumer Financial Protection Bureau
Attorneys General by State
Better Business Bureau

Current Internet Scams identified by Comparitech:
Internet Crime Schemes

Submit an Internet crime complaint:
Internet Crime Schemes

For Scam Proposals received via the U.S. Postal Service, file a complaint here:
U.S. Postal Inspector Service Mail Fraud

Information on Mail Fraud Scams and Most-Wanted can be found at:
Postal Inspection Service website


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