The Bottom Line: Debt Settlement Companies

Two lawsuits filed, and there could be more coming.

That's the word today from state Attorney General Andrew Cuomo, on his ongoing nationwide investigation into the debt settlement industry.  Cuomo has filed two separate suits against the companies Credit Solutions of America, Inc. based in Texas, and Nationwide Asset Services, Inc. based in Arizona.

The A.G. says those companies commit "double-fraud" because not only do they not deliver on their promises -- they can actually make someone's situation even worse.

Today, CBS-6's Dori Marlin talked to a local woman -- a victim of another debt settlement company, that's still under investigation -- who says she's living proof of that.  With her help, Dori has The Bottom Line on what to look out for with these companies.

Kathy LaPan of Hudson Falls has a genetic disorder that runs in her family, and had to have surgery for it in 2001.  Before that surgery, her and her husband's finances were in fine shape.  But, that surgery changed everything.

"We had it pre-approved with insurance," Kathy recalls.  "The day I came home from the hospital, they denied it... so we had tens of thousands of dollars in medical bills."

To try and help, she and her husband transferred a lot of the medical debts onto credit cards.  They were making payments on there for several years: they weren't behind, had good credit, but wanted to get it paid off so they could buy a house.

That's when they learned about DMB Financial, a debt settlement company that promised to speed things up.  Only instead, it set them back even further.

"We were paying them a great deal more each month, than we had been paying toward the debts," she says.  "We paid them almost enough to pay everything off in full, and they paid off one bill."

Kathy says they went in about $15,000 in debt.  They paid DMB about $10,000.  And that one bill settled?  According to the company, that was only for about $4,000.

"How did you feel when you kept seeing your money sort of disappear?" Dori asked.

"I wasn't surprised.  I was very, very angry, but I wasn't surprised," Kathy replied.

And maybe this is no surprise, either: DMB is now one of the debt settlement companies under investigation by A.G. Andrew Cuomo.

"It's much easier to avoid the problem than sign up with one of these companies, sign a contract, start going down the path, and then trying to unwind it," Cuomo says of companies like DMB.

Kathy LaPan and her husband, who've since had to file for bankruptcy, learned that lesson the hard way.

"In ten years from now, the bankruptcy will actually fall off our credit," Kathy says.  "Ten years from now our kids will be in college.  We're not going to have a house to raise them in."

The investigation againt DMB is still pending, but Kathy tells Dori -- there were some red flags along the way, that she and her husband should've been on the lookout for.

The Bottom Line?

Kathy says the company constantly asked for more money, even asking her to sell her eggs to infertility companies.  She says that should've been a red flag.

What else?  She says the company's numbers and dollar amounts were constantly changing; they refused to answer their phones; and the credit card companies said, they couldn't get through either.  All of those, things to pick up on and avoid, when dealing with one of those companies.

The Attorney General's office has also set up a new website to deal with concerns over debt settlement companies, since they are so prevalent right now.  That website is www.NYDebtHelp.com .