Editor’s Note, to readers or consumers in Texas (and other states) who may be affected: In August, Texas Attorney Greg Abbott took legal action against an Addison, TX-based company called Debt Relief USA. Please see the end of this report for important information regarding an extended deadline that is pending.

Using various search engines to research terms such “personal bankruptcy” can often result in hits for firms promising help with “debt relief.”

We’ve covered this before, but some recent posts turning up in news searches makes us think it’s worthwhile to repeat.

First, legitimate companies do exist that offer “debt relief” or similar counseling services.

Authorities list potential scam signals

However, authorities from various federal and state agencies have issued repeated warnings about firms who make big promises but really do nothing–except maybe get you in even worse trouble.

For instance, under the heading “Protect Yourself,” the Federal Trade Commission lists several warning signs.

“Be wary of credit counseling organizations that:

• charge high up-front or monthly fees for enrolling in credit counseling or a DMP.
• pressure you to make “voluntary contributions,” another name for fees.
• won’t send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances.
• try to enroll you in a DMP without spending time reviewing your financial situation.
  offer to enroll you in a DMP without teaching you budgeting and money management skills.
• demand that you make payments into a DMP before your creditors have accepted you into the program.

Another signal may be when a company advises you to quit paying your creditors–and pay them instead. For example, from the Minnesota attorney general’s Web site: “Debt settlement/negotiation companies promise you quick results to get out of debt. They typically tell you to stop paying your bills altogether and instead save the monthly payments you are making in a savings account. Once you have sufficient funds, the company will supposedly contact your creditors to negotiate a lump-sum payoff of your debt.

Debt settlement/negotiation companies often promise you that they can cut your bills in half or more.”

“Some organizations, such as the Consumer Federation of American, warn consumers not to use debt settlement/negotiation companies. Consumers have told the Attorney General’s Office that debt settlement/negotiation companies have made serious misrepresentations to them that left the consumers far worse off then when they started.

“If you follow the advice of a debt settlement/negotiation company to stop paying your bills, you will likely incur late fees, pay interest-upon-interest, and fall further into default. This may ruin your credit, and some of your creditors may even file lawsuits against you or garnish your wages and/or bank account.”

Recent Attorneys General suits

More recent than the Texas attorney general’s action in the DebtRelief USA bankruptcy, Illinois AG Lisa Madigan filed suit on Feb. 10 against four companies, alleging not only “deceptive practices” but also “excessive fees,” according to Mathew Hathaway in the St. Louis Post-Dispatch.

“The suits allege that the debt-settlement companies violated the Illinois Consumer Fraud and Deceptive Business Practices Act by lying to consumers about the services they provided and failing to disclose the negative impact their work would have on customers’ credit ratings.

” ‘These companies are unfairly luring financially strapped consumers with misleading claims that they can effectively eliminate consumers’ debt,’  Madigan said in a prepared statement. ‘The reality is that, after enrolling in a debt settlement program, consumers too often find themselves in even worse financial straits.’ ”

Even more recently a new law came into play on Feb. 19, when Minnesota AG “Lori Swanson filed lawsuits Thursday against six debt settlement companies, alleging they violated a state law passed last August that requires them to be licensed in Minnesota and cap the fees they can charge. The law generally caps the origination fee paid by the consumer at between $200 and $500. Monthly fees are capped at between $50 and $75,” according to consumeraffairs.com.

“Swanson alleges the six companies overcharged consumers by hundreds or thousands of dollars. The lawsuits–the first filed under the new law–seek injunctive relief, civil penalties against the firms and restitution to victims for the fees they paid.

” ‘What is really unfortunate about these practices is that the consumers who hire companies like these are trying to do the right thing. They know they have financial trouble,’ Swanson said in a statement. ‘They’re trying to hire an advocate to be on their side and help them manage a bad situation. Only rather than get help, they get exploited.’ ”

The 10 companies named as defendants in both states were listed as operating from four states: Arizona, California, Florida and Texas. For a list of the companies named in the Illinois suit and links for following up on complaints, see the press release on the Illinois attorney general’s site. For more about the Minnesota case, see that office’s PR concerning the suit.

‘Bar date’ extended in Texas bankruptcy action

In Texas, consumers who were trapped when DebtRelief USA (aka “No Debt USA”) filed bankruptcy and who have not yet filed a claim have only a few more days to join the proceedings. In a motion of the Bankruptcy Court of the Northern District of Texas, the extended “bar date” (see the first entry under “Claim”) was set for 60 days after the motion was filed on Jan. 5.

However, judging from a Sept. 9 letter to “former or current customers” of Debt Relief USA, Abott is not optimistic about recovering the money of shafted customers: “The Texas Attorney General is working with the Chapter 7 Trustee to ask the Bankruptcy Court to refund your “set-aside” funds to you as fully as possible.”

But, “[b]ecause of the limited funds in the estate, it is unlikely that you will receive a refund of any fees that were paid to the company.Because of the limited funds in the bankruptcy estate, it is unlikely that you will receive a refund of any fees that you paid to the company.

“In the event additional funds are found or recovered, however, further refunds to current and former customers may be made.”

The letter contains contact info for follow-up inquiries.

Also, please be aware that another site uses “Debt Relief USA” in its title, but we know of no legal connection with the Addison-based DebtRelief USA (”No Debt USA”); the company operating debtreliefusa.org may be a New Jersey company, according to this whois registration.

Who knew a relatively unknown state senator could have such far-ranging implications for jammed-up consumers scurrying to deal with over-the-levee unemployment rates, health-care costs and home-foreclosure levels–as well as credit-card company shenanigans?

Scott Brown (R-MA)  hasn’t been seated in Teddy’s 50-year-old chair, yet–but already he has an action figure. And some reports–notably, this one in the Christian Science Monitor– say his Republican victory in the Massachusetts race for Kennedy’s vacancy has “sent tremors” not only within the Team Obama reform effort but also “throughout the United States.” Beyond the five states the Monitor cites as candidates to follow the Massachusetts’ example, the spillover has also reached the Illinois primary–yes, a primary–in which Reuters points out “Five things to watch in Illinois” and at least one GOP-leaning blogger quotes the Reuters report then goes on to say: “The White House is paying close attention today. It’s a primary close to Obama’s heart, as it’s his former Senate seat that’s up for grabs.”

One thing for certain–any leader who can even partially help us to hack our way out of this mess deserves an action figure.

The serious, sobering certainty is that one election cost the Democrats their Senate “supermajority” of 60 votes, the implications of which are detailed in this CBSnews.com piece.

Here’s the highlights: “Basically, without 60 votes, under Senate rules, debate could go on forever and ever. This is called the filibuster. So basically, [because Brown won] . . . , the Republicans, with 41 votes, . . . have enough votes as the minority to prevent the Democrats, the majority with 59 votes, from ever bringing a final vote on health care reform or any other legislative priority to the floor. The minority [does] . . . basically control the Senate.”

Senate tactic not mentioned in Constitution

Ok, well, maybe that’s not quite true, but the point about the filibuster is accurate; and if all this self-focused in-fighting is not enough, turns out that cloture, the “procedure” that kills a filibuster, is not even a Constitutional device–in other words, even though its effects are very important to legislation that affects us all, it’s merely a procedural tactic–and limited to the Senate, at that. (For comparison, read about the Electoral College, which is in the Constitution.) This won’t be “the first time that the filibuster has been used to stop major pieces of legislation,” Fisk and Chemerinsky write, “and it’s definitely not a partisan idea–both parties, when in the minority, have used the filibuster to prevent the majority from passing everything they wanted to.

“According to law professors [Fisk and Chemerinsky] in their Stanford Law Review article from 1997, ‘The Filibuster,’ the technique was used not only to prevent civil rights legislation from passing for years in the last century, but more recently during the Clinton administration. Senate Republicans, then as now in the minority, used the filibuster to stop economic stimulus, campaign finance reform, lobbying reform and the [previous] attempt at health care reform. When the Democrats were the minority party in the Senate, they used the filibuster to stop much of the GOP’s Contract with America.

” ‘Filibusters are so ubiquitous in the contemporary Senate that it is now commonly said that sixty votes in the Senate, rather than a simple majority, are necessary to pass legislation and confirm nominations,’ wrote Fisk and Chemerinsky. “In fact, during the presidency of George W. Bush, Democrats, with Biden in their ranks, frequently filibustered some of the president’s judicial nominees for the federal courts.”

It gets worse.

Evolution of the ‘painless’ filibuster

When you think of a real-life filibuster, aren’t you getting an image at least somewhat informed by movie life? Namely, Jimmy Stewart’s “Mr. Smith” in Mr. Smith Goes to Washington. Anyone who’s ever seen the movie remembers the agonizing filibuster reel, watching the hero struggle to learn the tricks of the rulebook, while the other senators take turns dozing, coming and going in shifts.

Well, it turns out things have changed quite a bit since Capra made that 1939 movie.

The filibuster tactic nowadays is known as the “stealth filibuster.”

From the abstract of the Fisk and Chemerinsky paper: “Filibusters are ubiquitous but virtually invisible, for the contemporary Senate practice does not require a senator to hold the floor to filibuster; senators filibuster simply by indication to the Senate leadership that they intend to do so.”

In other words, a senator merely indicates that “I would filibuster, if I had to” and that takes the place of the real thing: no parched lips, no pleading bladder. *Poof* Instant roadblock, and the bill is tabled–Next!

From a May 5 piece at Huffington Post, “The Electoral College is provided for in the United States Constitution. The filibuster is not. In fact, the word doesn’t appear in any of our founding documents. Its derivation is from the Spanish filibustero, meaning ‘pirate’ or ‘freebooter.’ “

History of the tactic’s development traces to 1789, according to the Huffington piece, but for this discussion, the first important change came in 1917, when “the Senate developed a way of shutting down dilatory tactics of an obstreperous minority. It is called the cloture rule. During the closing days of the session that year, a group of isolationist senators who opposed the entry of the United States into World War I filibustered a bill which would have allowed President Wilson to arm U.S. merchant ships. The President denounced them as a ‘little group of willful men’ and called on the Senate to change its rules.”

Which it did, resulting in “a cloture rule which was embodied in Rule XXII of the Standing Rules of the Senate” . . . providing for “a 2/3 vote of all senators” that “could cut off debate.”

Whether Jimmy Stewart’s character had a problem taking a bathroom break is a question for fans of movie trivia, but the longest. actual-factual real-life filibuster on record–Strom Thurmond’s 24-hour, 18-minute ramble-thon against the Civil Rights Act of 1957–“would have gone on longer had Thurmond’s doctors not forced him to quit out of concern for kidney damage.”

More important was a deal brokered by LBJ (big surprise, right?) that resulted in a couple of new wrinkles, which in turn paved the way for a post-Watergate rule change that, among other things changed the majority requirement to a 3/5 vote and resulted in the the 60-vote supermajority requirement of today.

Inadvertent creation

Sadly, there’s more…which brings us back to Fisk and Chemerinsky, as described in the Huffington piece: “The story took a turn for the worse when, in the early 1970s, Senate majority leader Mike Mansfield — intending to dilute the power of the minority –inadvertently made filibustering easier.

“The extended speechifying made famous by Strom Thurmond and Huey Long before him has been replaced by what legal scholars Erwin Chemerinsky and Catherine Fisk have dubbed the ’stealth’ filibuster. Its genesis was the early 1970s, when it became apparent to then majority leader Mike Mansfield (D-MT) that delaying tactics such as objections to unanimous consent motions; forcing the previous day’s journal to be read aloud in its entirety; suggesting the absence of a quorum; and — of course — extended periods of time holding the floor were causing the Senate to fall behind in doing the people’s business.”

An idea emerged to let filibusters occupy morning sessions, but to reserve afternoons for “pressing business.”

Perversely, what actually developed from Mansfield’s dual-track system “has proved to be disastrous.”

——————-Next, in Part 2—————

What we have now is a system in which “the Senate has come to a point in time where it seldom takes up legislation unless the majority leadership has counted sixty votes. In other words, a credible threat that 41 senators won’t vote for cloture is enough to keep a bill off the floor on most occasions. Boston College historian Julian Zeliger puts it this way: ‘Mansfield’s measure, which was intended to promote efficiency, inadvertently encouraged filibusters by making them politically costless and painless.’ ”

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If you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”),  bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, please know the laws have changed recently. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13