One of the hardest things about teaching debtor-creditor law is keeping up with all the market innovations. Subprime mortgages are in the spotlight, but credit card debt has not subsided. Last quarter credit card grew at a rapid 9.3%. For families looking for a way to get off the debt treadmill without declaring bankruptcy, a new industry has been born: debt settlement companies. These businesses promise to negotiate some debt write-down with the creditors. But the negotiators too often take a customer's money and offer little relief.
The industry is growing rapidly, but there are no regulations, no industry standards, and no one to turn to for help if the customer gets cheated. Will this become the next path to bankruptcy--a family hit a rough spot, faced a double-digit rise in interest rates, went to a debt consolidator, then ended up in bankruptcy with even more debt and fewer assets?
Jane Birnbaum from the New York Times wrote about this new industry. Credit Slips' own Adam Levitin from Georgetown talks about the growing number of families in trouble, and Credit Slips' guest blogger Ronald Mann of Columbia describes the industry practices designed to put customers in a "sweat box" to extract money from them.
Would it be possible to help families through debt negotiation? Cindi Geerdes from the University of Illinois law school clinic says that such actions could help--if done right. But that's the trick: It isn't possible to tell in advance whether a family will encounter a good counselor or someone who will strip away their last dollars and leave them even deeper in debt.