Debt Settlement in Delaware - Know Your Rights & The Laws

Debt settlement in Delaware, also known as "debt relief," is the process of resolving due debt for less than the amount you owe. Depending on the situation, the process can knock as much as 30% to 50% off the principal amount. In some cases, even more.

Before signing up for settlement, you must know your rights and laws. So, here, we present all you need to know about debt settlement.

Debt Settlement in Delaware - An Overview

According to CNBC, Delaware boasts an average credit card debt of $6335. With such a severe figure, one in three Delaware citizens fails to make payments in time, causing their debts to go into the collections phase.

If you are a citizen facing a similar dilemma, you can find relief that you still have an avenue left.

You may talk about anything in business. Even if the price is fixed, you can still negotiate a lower price if you know who to talk to.

Similarly, when it comes to overwhelming debt, with the right strategic know-how, you can negotiate what you owe and cut your balances by as much as half.

This is where debt settlement comes in. It is an understanding between a creditor and a debtor to settle for less than what they currently owe, with the promise that they'll pay the amount agreed in full.

You may wonder why a creditor willingly waives a significant portion of the balance owed.

It's because the lender is either short on cash or concerned about your inability to pay off the entire balance. The creditor is attempting to protect its financial interests in both cases.

What Types of Debt Can You Settle in Delaware?

Typically, debt settlement in Delaware works best with unsecured debts. Unsecured debt refers to loans that aren't backed by collateral (an asset that a lender accepts as security for a loan). Credit card debts and personal loans are examples of unsecured debt.

If you have secured debts (loans backed by collateral), like mortgage loans, auto loans, etc., settlement is not an option.

In that case, your creditors are entitled to recover the due amount through collateral.

Delaware Statute of Limitations

The statute of limitations (SOL) is the period that allows your creditor or a debt collector to sue you for overdue debts. If the period elapses, your creditor won't be able to file a collection lawsuit, although you remain liable for the debt.

The statutes of limitations on debts differ from one state to another.

In Delaware, the statute of limitations on debt collection for open credit card accounts is four years; for written contracts, it is three years; and for promissory notes, it is six years.

The clock starts from the date you default, usually thirty days after your last payment.

When Should You Consider Settling Your Debts in Delaware?

If you're behind your debt by at least 90 days and are still struggling to manage payments, you can consider debt settlement in Delaware. Due to financial hardship, you may face issues in affording debt payments. So to handle such unsecured debts with a good amount of savings, you may opt for a debt settlement option in Delaware.

You can talk to your creditors or hire a professional debt settlement company to negotiate with the proposal of making a lump sum payment and settling your debt.

The Pros & Cons of Settling Your Debts in Delaware

With great rewards come risks. Similarly, debt settlement in Delaware has its share of pros and cons that you must know before signing up for it.

Pros

  • Repay your debt and get relief faster - If you have overwhelming debt, settlement can allow you to pay less than what you owe. The settlement process is also much faster than other debt-relief options.
  • Avoid bankruptcy - When all debt management strategies prove inefficient, and the choice is between bankruptcy and debt settlement, the latter is a clear winner. Of course, settlement hurts credit score, but it's not as severe as filing for bankruptcy.
  • Avoid being sued for the debt - Typically, legal proceedings are a long exhausting process that nobody likes to endure. But, if you are well behind on your debt, creditors can sue you, especially if you have income or assets they can seize. Settling your debt in Delaware can help you avoid such crises.

Cons

  • Negative impact on your credit score - While not as devastating as bankruptcy, settling your debts will harm your credit score. This will affect your future loan terms, credit availability, and more.
  • Tax Consequences - If a creditor agrees to settle your debt in exchange for a reduced payment, and the settlement results in a debt reduction of $600 or more, the reduced amount is counted as taxable income.
  • Settlement Fees - If you decide to work with a debt-settling firm in Delaware, you will need to pay a fee for their services, which might cause further financial strain.

DIY or Debt Settlement Company in Delaware

Negotiation between creditors and debtors is the fundamental aspect of debt settlement service. So, if you want to opt for the DIY option, you must have the necessary knowledge and persuasion skills to talk your way into a settlement.

Things to Consider When Settling Your Debts - The DIY Option

  • Know your terms - Sit down and go through your finances; you should have a firm figure in mind when you sit at the negotiating table.
  • Be genuine - Give a condensed version of why you can’t pay your debt as agreed. If you’re in a difficult situation, make that clear, and tell your lender what you’re trying to do to get back on track.
  • Don’t tolerate bullying - As mentioned before, creditors aren’t allowed to cross certain boundaries given to you by law. So, voice your opinion if you feel the debt collector is transgressing the boundaries during your conversation.
  • Take note - Debt discussion can be overwhelming. Keep a pen and paper close by and record important details such as the name of the person you speak with, the time of the call, how long it lasted, and what you discussed.
  • Ask for an agreement - Once you conclude your negotiation, ask for the settlement or repayment plan in writing as soon as possible. Don’t pay any money before you see the agreement.

Following these steps will help you negotiate your terms.

However, if you aren't confident in your abilities and knowledge, the best thing to do is to hire a debt settlement company in Delaware.

Things to Consider When Hiring a Firm

Here are some points to keep in mind when hiring a debt relief firm to settle your debt -

  • Research - Look for licensed debt relief companies with a good track record.

  • Practice Caution - If you come by a debt settlement company in Delaware that says "Guaranteed Results" with little to no proof of customer satisfaction to back their claim, keep looking for other options.

    You can check websites like the Better Business Bureau (BBB) and TrustPilot to read reviews and get an idea of where a company's customer service excels and where it falls short.

  • Ask About The Cost - Once you choose a company, inquire how much it charges for its settlement service. If the company tries to sidestep your query, or if they say anything about upfront fees, it's a red flag.

    Debt relief companies typically charge 15% to 25% of the original amount of your debt or the amount you agree to pay.

  • Assess Your Finances - Debt settlement services require you to put money into a dedicated account for 24 months or more, and these payments are used for the lump-sum settlement of your debt.

    If you don't assess your finances beforehand, you may find it hard to keep up with these payments and hence, give up on the settlement agreement mid-way. So, ensure you have enough money to make debt payments during the negotiation period.

Debt Settlement Laws in Delaware

If you decide to work with a debt relief company, here are the essential laws that you must know -

Note: The following list of debt settlement laws in Delaware is taken from the Delaware Uniform Debt-Management Services Act.

Preconditions to Furnishing Debt Settlement Services

The company is obligated to -

  • Educate you on how to manage your personal finance.
  • Determine whether a settlement plan is suitable for you based on your financial situation and the likelihood of your creditor engaging in negotiations.
  • Prepare a financial analysis report and provide you with a copy.
  • Prepare a comprehensive plan to make regular, periodic payments and provide you with a copy of that plan.

You can discuss and suggest changes to the financial analysis and payment plans.

Fees and Other Charges

  • The company cannot impose charges or receive payment for debt relief services until you sign an agreement.
  • After you sign an agreement, the maximum fee you may be required to pay is 18% of the principal amount of the debt. This includes the dedicated account set-up fee, settlement fee, and other service charges.
  • Suppose you do not ratify an agreement but receive education and counseling from the company. In that case, you need to provide an education and counseling service fee. The amount depends on the quality and degree of the service (usually, it does not exceed $100).
  • The company is obligated to refund the educational and counseling service fees if you agree within 90 days of the termination of the service.

Periodic Reports

  • If you sign an agreement with the company, they are required to periodically provide you with a thorough financial report of your settlement program.
  • Suppose you ask for a written copy of the financial analysis, settlement plan, public information about the company (like its name and address), or other information related to the settlement. In that case, the company must send it to you for free within three business days.

Agreement Termination

  • You have the right to terminate your agreement any time before midnight of the third business day (the business day count begins the day after you agree to it). If you terminate your contract within this time, the company is obligated to refund money that they received from you or on your behalf.

    The termination also revokes all powers of attorney you grant the company. You can terminate the account anytime after the third business day. But, in that case, the company is not liable to refund any fees.

  • The company has the right to terminate the agreement if you fail to make payments for 60 days.

  • If you or the company terminates the agreement and they hold money on your behalf to pay your creditors, they need to refund the money and a portion of the set-up fee.

  • Suppose the company doesn't hold money on your behalf in case of termination. In this situation, they are liable to refund 65 percent of the costs linked with the unpaid portion of the principal balance at the time of termination.

Bottom Line

Settlement is a good idea, but only as a last resort when all alternatives fail. Neither debt settlement nor bankruptcy is a good option if you can pay bills.

If you want to lower your interest rates, you can refinance with a personal loan if you have decent credit or sign up for a debt management plan if you don't.

The best advice is to consult a credit counseling agency in Delaware about your finances, go over your options, and choose the one that works best for you.

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