A legal question and answer line for Seniors. DEAR SENIOR LEGAL LINE:

I have over $10,000 in credit card debt and saw an ad from a California debt management company that promises to work with my creditors to help me pay my debts. After reading your columns, I am more aware that some things may be scams. Are debt management services companies scams?

Not all debt management services companies are scams, but you should definitely examine them closely before you decide to business with them. Certainly, I would recommend only doing business with a company that is registered in Minnesota. Minnesota has new regulations to protect consumers doing business with debt management services companies.

For those that do not know, a debt management service is a company that collects money from you and makes payments to your creditors. They also will probably try to work out agreements with your creditors to reduce your total debt. The scam companies are those that charge you large fees and don't do anything for you. People are so desperate to get help paying their debts in order to avoid filing for bankruptcy that they fall victim to the scam companies. It sounds like you may be in this situation. I advise you to not do anything rashly but to think through your proposed contract with the debt management services company. Only work with a Minnesota regulated company.

In Minnesota, the legislature created Minnesota Statutes Chapter 332A, Debt Management Services, in order to provide Minnesota residents with protection from scam companies. To do this, Chapter 332A sets forth some requirements for any debt management services company that wishes to do business in Minnesota to follow. First, the company must register with the Minnesota Department of Commerce. The Minnesota Department of Commerce will not register them unless they provide proof that they have accreditation by the Council on Accreditation, the Bureau Veritas Certification North America, Inc., or BSI Management Systems America, Inc. Furthermore, they must disclose in their application whether or not their license to do business has ever been suspended or revoked in any other state. They must post a bond and pay a fee. The Department of Commerce may deny, suspend, or revoke a registration.

The law also protects citizens in that it requires your contract with the company to contain certain protective promises, as well as gives you other protections separate from the contract. The contract must contain certain terms. If it does not, it is invalid. It must for example, spell out the amount of any initial and/or monthly fees to be paid by you; the total amount of fees expected to be paid during the contract; a detailed description of all services to be provided by the company; a notice telling you when you may cancel the contract; and an explanation of the company's refund policy. Furthermore, before signing the contract, the company must first give you specific debt counseling, prepare a financial analysis, and propose a plan to you; decide that you would benefit from the plan based on the facts that they have gathered; and give you a list of creditors that they think will agree to work with them on the plan. The company must tell you within ten (10) days if any of your creditors refuse to agree to the plan. If a creditor has agreed to a plan but then withdraws, the company must tell you within fifteen 15 days. Furthermore, the company must hold your money in trust and make timely payments to your creditors. People were having problems in the past with debt management services companies holding on to the money and not paying the creditors. This law seeks to avoid that problem.

A company cannot charge you more than $50 to set up a plan, your monthly service fee cannot be more than 15% of your monthly payments to the company or $75, whichever is less. Finally, you have a right to cancel at any time for any reason after giving the company a ten (10) day written notice. In contrast, the company can cancel the contract only after giving you a thirty (30) day written notice and must have good cause to cancel.

If the company violates the law, the Minnesota Attorney General's Office has the power to enforce it. You also have the right to bring a private lawsuit against any company that violates the law.