Already helped 9865 people to start a debt free life

By J. H. Marman
Associate Attorney,
Oak View Law Group

Debt settlement - A legal way to reduce your debt load faster

Debt settlement is an effective alternative for people struggling to cope with mounting debt. By getting help of a debt settlement program, you can reduce your collection calls to a great extent and moreover, avoid bankruptcy. In debt settlement, professional debt negotiators deal with creditors or collection agencies, and help individuals pay off debt easily.

Table of contents

• What is debt settlement?
• How does a debt settlement program work?
• When should you go for debt settlement programs?
• Is debt settlement a legal way to repay bills?
• Which is better – DIY or getting help from an attorney?
• How can you select a good debt settlement attorney?
• What are the new debt settlement laws enacted by FTC?
• Does debt settlement help you eliminate all kind of debts?
• Do you have to pay any fee in debt settlement?
• Why would your creditor accept a settlement offer?
• What is the duration of a settlement program?
• Are you eligible for the settlement program?
• What are the debt settlement pros and cons?

Feb 20, 2012 - Review by client RW from MD. Saved $4314.66. website

"I had a lot of debt which became unmanageable and things did not look good. I was looking for a way to resolve my problem and found Oak View Law Group." Learn more...
Rating: 4.5 out of 5 based on 140 reviews.

More reviews

What is debt settlement?

Debt settlement or debt negotiation or debt arbitration is a process wherein creditor accepts a sum lesser than the original amount from the debtor, and regards it as the full payment.

How does a debt settlement program work?

When you enroll in the program, your monthly payments to the debt settlement company get accrued in a trust account for a certain number of months. You’ll not be required to make any payments to the creditors .You can access the trust account through your secure login area. Once enough money has been deposited into the account, the debt settlement company initiates the negotiation procedure with the creditors.

The debt settlement company negotiates with the creditor or the collection agency to settle on such an amount that is acceptable to both the creditor and the debtor. Once the debt settlement company settles down on something with the creditor, you can pay off the amount either in lump sum or in installments.

Usually, a debt settlement negotiation reduces a significant portion of your total outstanding debt balance. However, how much reduction you will get, chiefly depends upon the efficiency of the debt settlement company.

When should you go for debt settlement programs?

You can seek debt settlement services or programs under certain circumstances mentioned below

1. You have some unsecured outstanding balances.
2. You are behind on your payments for the past few months.
3. You are not in a position to repay your bills.
4. You can repay if the debt burden is reduced.
5. You are considering bankruptcy.

Usually, the professional debt settlement companies prefer to work with the consumers having debt worth $10,000. However, there are some companies that may agree to settle the debts lower than $10,000. All you need to do is find such companies.

Is debt settlement a legal way to repay bills?

Debt settlement is perfectly legal. It is one of the most popular legal debt solutions across the country. However, it is illegal to use unscrupulous tactics to make money out of the consumers. The debt settlement companies or attorneys have to comply with the state and federal laws. They can be heavily penalized for violating the FTC laws.

Which is better – DIY or getting help from an attorney?

Some might say that it is better to manage your debt on your own. However, others might say it is wise to hire the services of an experienced debt settlement attorney. We have prepared a chart for you so that you can choose the best option for you.

	Consulting an attorney	Do It Yourself (DIY)
Getting genuine assistance
Help with legal representation
Guidance while signing legal papers
Elimination of collection abuse
Getting professional help with negotiation
Reduction in principal debt amount

How can you select a good debt settlement attorney?

Qualified and experienced attorneys can give the right debt settlement advice to you. They can guide you with their immense knowledge, experience and proficiency.

Check out the 4 tips to select the right debt settlement attorney:

1. Check the license: Find out if the attorney has the license to work in your state. If required, you can visit the official website of the State Bar Association and go through the list of the licensed debt settlement attorneys.
2. Find out the fee amount: You’ll have to pay a fee to the debt settlement attorneys. So, it is better to know how much you have to pay the attorneys for getting out of debt. The fees will primarily depend upon the debt amount, and the complexity of the case. Shop around and find out the fees charged by the settlement attorneys. If you’re short of cash, then you can work with an attorney charging low fees for his services.
3. Check the online review: Read the online reviews of the attorney. This may help you know about the track record of attorney. Find out if the clients are satisfied with the services of the attorney. If the clients are not satisfied with the debt negotiation skills of the attorney, then you can work with another lawyer. Don’t forget to acquire knowledge on the success rate of the attorney. If the success rate is high, then there is a good chance of settling the debts successfully.
4. Check with BBB: Not all the attorneys are registered with the Better Business Bureau (BBB). Still, it is better to check the attorney with BBB once. This is mainly because BBB maintains the detailed information of the enlisted attorneys. You can check the track record and the consumer complaints against the attorney from the official website of BBB.

What are the new debt settlement laws enacted by FTC?

Federal Trade Commission (FTC) has introduced some laws in the year 2010, which a debt settlement company or a firm needs to follow. The laws have been introduced for reducing the debt settlement scams which have increased in the last few years.

Check out the debt settlement laws enacted by Federal Trade Commission:

• Fee: The settlement companies can collect fees only when they have settled or negotiated at least one debt of the consumer successfully.
• Agreement: There should be a proper written settlement agreement between the creditor/collector and the consumer. The settlement company can’t collect any fee until the agreement has been signed by both the parties.
• Payment: After the creditor has received at least one payment from the consumer, the settlement company can charge a fee.
• Trust account: The consumer will be the owner of the funds accumulated in the trust account. He can take out the money from the account anytime without being penalized. Moreover, the trust account should be maintained by a financial institution. The settlement company should not have any kind of association with the institution, and can’t charge any referral fee.
• Disclosures: The professional debt negotiator has to explain the different aspects of the debt settlement services to the consumer. He has to give an idea about the time it will take to become debt free, negative impacts of settlement and its total cost. Know more about FTC disclosure from here.
• Misrepresentation: The settlement companies are prohibited to misrepresent any facts. They can’t fabricate their success rates or claim to be a non profit company when they are not.

Does debt settlement help you eliminate all kind of debts?

Debt settlement primarily helps you repay unsecured debts. This means that you can use debt settlement service to reduce debts, which are not secured by collateral.

A professional debt settlement company can help you settle the following debts:

• Credit card bills
• Store card bills
• Utility bills
• Payday loans
• Personal loans
• Rent defaults
• Any unsecured line of credit

Keep in mind that you can’t settle secured debts like mortgage.

Do you have to pay any fee in debt settlement?

You’ll have to pay a fee for using the professional debt settlement services. After the new debt settlement laws came into effect in the year 2010, the companies can’t charge any upfront fees. They can’t also charge exorbitant fees for their services. The companies can only charge fee on the total amount saved by you, the consumer, through debt settlement.

State laws also impose certain regulations which an arbitrator must strictly follow while charging his fees. You can always compare Oak View Law Group’s fee structure with that of any other debt settlement company in order to get a fair idea about the costs involved in a settlement process.

Why would your creditor accept a settlement offer?

When a creditor accepts a settlement offer, he forgives a part of your debt. Quite clearly, he loses money. You may wonder why a creditor agrees to work out a settlement agreement with the consumer when he loses money.

Creditors are intelligent people. They understand that a consumer can go bankrupt if his financial state is very poor. In this case, they can hardly recover any money from the consumer. Debt settlement is a better deal for a creditor since he gets back a significant part of the original debt. This is why creditors often agree to settle a debt.

What is the duration of a settlement program?

The duration of a debt settlement program usually depends upon the total number of debts, the kinds of debts, the total debt amount which a consumer intends to settle, and the amount he can afford to settle for. In general, a settlement case gets completed within 2-3 years. The more you, the consumer, can pay, the earlier your debt gets settled.

Are you eligible for the settlement program?

Though debt settlement solutions are quite beneficial for the consumers, but not everyone is qualified for this program. Your creditor will agree to settle your debt if:

• You have defaulted on the loan.
• You’re missing payments continuously.
• You have some source of income.
• Your debt amount is quite high.
• You’re facing financial hardship.

What are the debt settlement pros and cons?

Like every debt relief program, debt settlement too has its share of benefits and drawbacks. Check out the debt settlement pros and cons before reaching upon a decision:

Here are the 5 settlement pros you must be aware of:

1. Get a reduction in the debt amount: A considerable percentage of the outstanding balance can be reduced through debt settlement. If the professional debt arbitrator has excellent negotiation skills, then the creditor may agree to forgive a large percentage of the debt amount.
2. Will not have to pay extra fees: The debt settlement firm or the attorney will negotiate with your creditors, and get all the late fees eliminated. Extra fees and penalties will be eliminated too.
3. Get respite from the collectors: The debt settlement company or firm will handle all your collection calls after enrolling into the program. It will be their responsibility to tackle the creditor calls on your behalf. However, the creditors/collectors can call you in certain situations. Make sure you respond to those calls.
4. Avoid legal hassles: The creditors/collectors are less likely to file a lawsuit against you after enrolling into the settlement program. The reason is, creditors/collectors realize that they will get back their money eventually. Even if the creditors decide to register a case in the court, the debt settlement attorney/firm may give you legal assistance. They may guide you how to deal with the lawsuit.
5. Avoid the hazards of bankruptcy: As you repay your bills through debt settlement, you won’t have to think about filing bankruptcy anymore. You won’t have to submit bankruptcy petition or go through the means test for discharging your debts.

Check out the 2 settlement cons before getting help from an attorney or a company:

1. Tax implications: If you settle your debt for less than what you actually owe, or if the creditor writes off a debt you owe, the Internal Revenue Service (IRS) treats the forgiven amount as income, on which you may have to pay income taxes.
   
   Any creditor, who forgives or writes off $600 or more from the primary debt balance, must send you and the IRS a Form 1099-C at the end of the tax year, and keep a copy with him. These forms are intended for reporting income to the IRS that you are receiving due to a settled or forgiven debt.
   
   Again, the creditor may send Form 1099-C to the IRS and not to you. In that case, if you don’t list this income while your tax return, you can get a tax bill or even an audit notice. This can compel you to pay more for IRS interest and penalties.
2. Credit score may drop: A settlement program does not help your credit score. This is because you do not pay back the full amount to the creditors when you settle your debt. Creditors would report the account as "Paid as Settled" or “Paid as Agreed” to the credit bureaus. This negative remark will stay on your credit report for 7 years.

However, most people who settle their debt already have blemished credit. Creditors will agree to settle your debt only if you’re missing payments consistently (which drops your credits score). Therefore, credit score should not be an issue with you, the consumer, who are contemplating to settle debt.

Finally, there are a lot of organizations which claim to be non-profit debt settlement companies. However, you should not work with the company simply because it claims to be non profit. The reason is, a lot of fraudulent non-profit debt settlement companies have sprang up in the last few years. They will misuse your hard earned dollars without providing any real service to you. You’re already knee deep in debt and will surely not like to get into greater debt problems.