Call for a free consultation (800)-530-OVLG
BBB-A-Rating

OVLG Knowledge Center

News about debt, taxes and all things personal finance
Auther
Created By : Amy Nickson
On 11th Jun,18
Ask Amy Nickson
Wiki Article Picture: 
Debt Settlement - Eases you out of your debt load lawfully
Rating: 
5
Average: 4.3 (3 votes)

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. Debt settlement companies or attorneys have to comply with state and federal laws. They can be heavily penalized for violating FTC laws.

3 Tips to consider before you go with the settlement process

Check out the following tips:

1. The first important tip is to check to make sure that the creditor has not already been "charged" or "written" off. Send the creditor a verification letter to make sure the debt has not already been paid.

2. The second tip everyone should follow is to check the statute of limitations in your state. Once the statute of limitations has expired, the debt collector cannot take you to court to collect the debt. You still owe money even if the statute of limitations has expired.

3. The final thing everyone should do is to make sure you have reported the income from your debt settlement properly on your income taxes. The IRS regards any debt amount forgiven as part of a debt settlement to be income to you. If you are worried about reporting your debt correctly you should consult a tax professional. You should verify what the Statute of Limitations (SOL) is in that state before you try to arrange money to pay off a debt. Collectors only have a specific period to collect on a debt so you need to find out if the statute of limitations in your state has ticked away.

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 attorneyDo It Yourself (DIY)
Get genuine assistanceYesNo
Help with legal representationYesNo
Guidance while signing legal papersYesNo
Elimination of collection abuseYesNo
Get professional help with negotiationYesNo
Reduction in principal debt amountYesYes

How can you select a good debt settlement attorney?

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

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

  1. Check the license: Find out if your attorney has a 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 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 to get out of debt. The fees will primarily depend upon the debt amount and the complexity of the case. Shop around to 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 out the online review: Read the online reviews of the attorney. This may help you know the track record of the attorney. Find out if the client is satisfied with the services of the attorney. If the client is 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 attorneys are registered with the Better Business Bureau (BBB). Still, it is best to check with 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 debt settlement laws enacted by FTC?

The Federal Trade Commission (FTC) has introduced some laws in the year 2010, which a debt settlement company or a firm needs to follow. 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 the 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 properly 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 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, the negative impacts of settlement, and its total cost. Learn more about the FTC disclosure form here.
  • Misrepresentation: The settlement companies are prohibited to misrepresent any facts. They can’t fabricate their success rates or claim to be a nonprofit company when they are not.

8 tips to make sure you choose a legitimate settlement company

Here are a few tips which can help you differentiate between a fraudulent and a legitimate debt settlement company so that you can make the right choice for yourself:

1. Check if the company is associated with TASC:

Within the debt settlement industry, there is an association called The Association of Settlement Companies. The association monitors the settlement company's standards and rules. This helps evaluate the company's performance and protect the consumer from fraud. It is therefore advisable that you enroll with a company that is a member of TASC.

2. Enquire about the fees and services offered:

A reputable scam-free debt settlement company is always clear about its fee structure and service charges. Try to understand their fees and the help that the settlement company offers its clients. If the information that they provide is not clear, then you should ask all the questions you have and get the answers in writing. If the company asks for upfront fees before they have looked at your financial situation, then the company may not be right for you.

3. Analyze the settlement company's offer:

Check out whether the company offers you a money-back guarantee within 30 days of cancelation. If the offer is within less than 30 days, then it is better not to enroll with that company. Look for a debt settlement company that gives a more realistic offer.

4. Do not agree to a commission-based fee:

If the company bases its fees on a commission structure, then it's probably not a good idea to enroll with that company. A company like that will be more interested in the amount of money they can charge than helping you. Enroll with a Debt Settlement Company that charges reasonable fees and no commission.

5. Check the Accreditation with the Better Business Bureau (BBB):

Check out the company's accreditation with the Better Business Bureau (BBB). The company's accreditation with BBB ensures that it's reliable and legitimate.

6. Look out for an alternative plan if your settlement plan fails:

Ask for an alternative plan if your debt settlement plan fails. A reputable debt settlement company always offers an alternative plan if they find that debt settlement is not the best option for you. All options should be considered by the company to provide you with the best possible deal.

7. Ask them how long it will take to settle your debt:

Find out the approximate time the company will need to settle your debt. Normally, the time needed to settle a debt depends upon the type of debt. Credit card debt settlement takes 1- 3 years, where others take around 3-36 months. But, the time can differ depending on the company's efficiency and the number of debts you have.

8. Have written evidence from the company:

Do not believe in false verbal promises. Always look for the company's written guarantee and make sure they follow it. Make sure to review the company's refund and fee policy before enrolling with them.

Last Updated on: Mon, 11 Jun 2018