Here’s an very good insider’s look at what exactly debt repair/settlements companies do.  It is quite well written by an ex-employee from one of debt-settlement agencies and goes in-depth about all the deception that takes place.
http://consumerist.com/371210/confessions-of-a-debt-settlement-company-worker

You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:

Why Credit Repair is All the Buzz
Not too long ago a credit score of 620 was considered acceptable. Not anymore, says Fannie Mae and Freddie Mac. After suffering major losses stemming from the high foreclosure and delinquency rates in the mortgage market last year, Freddie and Fannie have redefined risk, and are now charging serious […]