The Federal Trade Commission announced that it returned approximately $12.7 million to consumers this week. Consumers who were all ready struggling with financial hardship when they turned to AmeriDebt and DebtWorks for help and understanding.

This was the largest debt management deception case brought by The Federal Trade Commission, and it’s finally paid off for the innocents suckered by late-night TV ads and direct mail barrages promising debt freedom.

According to ConsumerAffairs.com, AmeriDebt Counsel Rob Herrell stated that he was surprised and disappointed about the lawsuit filed by Attorney General Jay Nixon.

What about the consumers who were deceived by AmeriDebt? They must have been surprised and disappointed as well.

All 287,000 of them.

In addition to the almost $13 million, another $7 million will be returned to consumers as the result of class action settlements with related credit counseling services. More than 460,000 consumers who obtained a debt management program with one of 11 credit counseling services who worked through DebtWorks will qualify for compensation.

AmeriDebt was supposed to be a non-profit credit counseling service. Missouri Attorney General Jay Nixon charged that AmeriDebt, DebtWorks and other related credit counseling agencies, deceived consumers with high hidden fees and a lack of any real credit counseling. The employees of these credit counseling agencies had little or no training and were paid on commission. Instead of counseling the consumers, they sold debt management programs that charged a monthly fee and lasted 3 to 5 years.

The monies from some of the debt management programs were secretly transferred into for-profit businesses owned by Andris Pukke, the owner of AmeriDebt.

Pukke was barred from working in the debt management, credit counseling and telemarketing. Unfortunately, this remedy came along a bit too late for the scores of people who fell victim to his scams and shell games.

There is a sudden, renewed sense of urgency in the debt collection efforts of banks and credit card companies.

In this time of increased foreclosures, rising unemployment and a rocky economy, more consumers are defaulting on their credit card payments. According to the Wall Street Journal, the percentage of bank credit-card accounts that are delinquent rose to 4.51% in the first quarter and they expect the problems to get worse.

Credit card companies and banks are responding by stepping up their debt collection efforts. They are pursuing past due accounts more aggressively and starting collection practices earlier rather than waiting for accounts to go more seriously past due.

It is not uncommon to get a phone call from a debt collector when you’re just a few days behind on payments, as opposed to a few weeks as was previously the case.

Creditors are also turning delinquent accounts over to third party, collection agencies sooner. The debt collection agencies may not be as easy to deal with as the original creditor. These agencies are also subject to the Fair Debt Collection Practices Act.

So what are people doing? They’re ignoring those phone calls in droves.

InsideARM.com reports that Gwenn Bezard, research director for Aite Group, is noting that creditor and collector efforts are falling short of the mark.

Some financial institutions are becoming more creative in their attempt to reach borrowers. They might offer a free phone card or gift card that can only be activated when they call the company. Call to redeem your card and you’re faced with a barrage of payment plans, waived fees, lower payments and flexible interest rates. Citigroup is even offering settlement programs to those who are extremely behind on their payments.

Illegal? Deceptive? I think so, but it depends on the way you’re approached. If you get a letter from a debt collector promising you a free gift and not clearly disclosing that the letter is an attempt to collect a debt, it may be in violation of federal law.

Consumers may find that credit card companies and banks will be more willing to help if they communicate sooner and work with lenders to make payments.

You may also find yourself the target of repeated attempts to scare you or trick you into payment. As always, if you think you’re being misled it’s best to call on an experienced consumer protection lawyer to review your situation.

The economy is sinking like a mob informant with cement shoes.  Credit card companies are seeing delinquencies shooting through the roof.  Everyone is tightening their belts.

It’s a perfect time to negotiate your credit card rates.

Think about it - if you’re paying the credit card company on time and have a good track record, they want to keep you doing so.  If they don’t make you happy, you may either pay off the debt in full (bad for them because they lose all the income) or default (bad for them because they lose all the income).

If you think “scripts” are just for actors, then chances are that you’ve never tried to negotiate with your lenders. Many customers mistakenly believe that once they’ve agreed to credit card terms, no matter how unreasonable, they are stuck with them for the foreseeable future. Prime rate goes up . . . prime rate goes down . . . and you may feel as though you’ve been tossed into a sea of debt without a paddle. If this sounds like your situation, then a little bit of “acting” may go a long way toward renegotiation of your credit card rate. The following script is excerpted from an article from Bankrate.com and can be adjusted to fit your own situation as needed :

Hi, my name is [Your Name]. I am a good customer, but I have received several offers in the mail from other credit card companies with lower APRs. I want a lower rate on my card, or I will cancel my card and switch companies.

If you aren’t able to get the rate you’re hoping for, ask for a manager, and if that doesn’t work, try back on another day to see if you get a customer service representative that is a bit more sympathetic to your cause.

While rate renegotiation may not work for everyone (especially if you’ve been late on payments), it never hurts to try; and if it works, you’ve just saved yourself a substantial amount of money in a relatively short amount of time.

Did you know that you might have to report part of your debt settlement as taxable income? You could owe federal taxes, and depending on where you live, state taxes as well.

Tax consequences are a common objection to debt settlement. Few consumers are aware of the tax implications. When you are suffering from financial hardship and unable to pay your bills, the last thing you expect to incur is debt to the IRS.

In general, the IRS considers debts that have been forgiven in the excess of $600 as taxable income. If you have settled with a creditor on a debt, they should send you a 1099-C tax form. This form will list the amount of forgiven debt and the interest.

Let us say you borrowed $10,000, and after paying back $6,000, you defaulted on the loan. After some time, you remain unable to pay the debt. The creditor agrees to forgive your remaining debt and sends you a 1099-C tax form. The IRS considers your taxable income to be $4,000 because you initially received $10,000 and only paid back $6,000. Additionally, you may have to pay taxes on any interest that is forgiven.

However, not all cancelled debts are regarded as taxable. Debt discharged in bankruptcy are not considered taxable.

If the amount of debt you owe is greater than your assets, meaning you are insolvent, the IRS does not require you to report the forgiven debt. But, you cannot exclude any amount of forgiven debt that is more than the amount by which you are insolvent.

Certain farm debts and non-recourse loans are also not regarded as taxable.

Certain student loan debts are also considered not taxable.

The laws are complicated and it is best to consult a professional to find out what your tax responsibilities are.

They masquerade under various names such as debt consolidation, debt management, debt relief, debt elimination and debt settlement. They are the companies that promise to solve all your debt problems.

You’ve probably seen them in the newspapers and on late-night television.

Beware and be careful.

Debt settlement is an option to help you eliminate your debt. Debt settlement is a method of debt reduction in which the debtor and creditor agree on a smaller balance that is considered payment in full.

Debt settlement companies act as an intermediary between the debtor and creditor. They negotiate a price for settling the debt and take payments from the consumer.  A debt settlement company’s primary incentive to settling your debt is to make money.  If you choose the wrong company, you could be a victim of a debt settlement scam.

Here are a few things to be aware of when choosing a debt settlement company.

Does the debt settlement company tell you what the fees will be up-front? What are the fees based on? If the fees are based on a percentage of the debt- be careful. Some companies will charge large up-front fees and large monthly fees that are due before they actually do any negotiation with creditors.

Is the debt settlement company registered with The Association of Settlement Companies (TASC) or the Better Business Bureau?  How long has the company been in business? How much debt have they actually settled? If they have been in business for a few years, their debt settlement ratio should be higher.

Are the employees paid a commission? This might not be a great idea from the consumer’s viewpoint.

Will the debt settlement company get the collection calls to stop by using the provisions of the Fair Debt Collection Practices Act? If they answer this with a no, consider your options.

Will the debt settlement company make a guarantee?

Is the person you are working with a lawyer in good standing in your jurisdiction? If so, check with the state’s ethics and licensing entities to ensure that the person has not fallen on the wrong side of regulators in the past.

There are many things to consider when considering debt settlement. Be careful and be aware. If you have questions or doubts, you can consult a professional for recommendations.