Debt Settlement Protections In Minnesota

Anthony Chester, Esq

According to the most recent data from the Federal Reserve, the average credit card debt of American families is $6,270. The weight of this debt, and the ever-increasing balance due to interest, can feel overwhelming. For some consumers, interest rates on those debts can be as high as 30%, leading to a downward spiral of debt, stress, and financial strain. As a result, many people look to debt settlement companies who promise relief and financial independence. Unfortunately for consumers, these companies’ promises are often too good to be true. 

Debt settlement companies sell the idea that they can get you out of debt quickly and for a huge discount on what you currently owe. They promise results and assure people of the ease and convenience of their “risk-free” services. Understandably, this possibility can be incredibly appealing to people looking for a way out of debt. What these debt settlement companies don’t mention is that their “strategies” often carry huge negative consequences for consumers and that, in some cases, the conduct these companies engage in is illegal in Minnesota.

While there are variations of how debt settlement companies operate and how they achieve settlements with your creditors, the most basic strategy that many companies use is to cause you to default on your debts, allow those debts to reach a charge off status, and then hope that they can negotiate a lower settlement on your behalf to resolve the debt—all while charging huge fees to do this “service”. What these debt settlement companies gloss over is that defaulting on your debt can cause significant damage to your credit score—and may stay on your credit reports for up to seven years. Even worse, if the debt settlement company is unable to achieve a settlement with a creditor, oftentimes the creditor chooses to simply sue the consumer:  getting a civil judgment against the consumer for the full debt, interest, and late fees, plus any applicable court costs. In that worst case scenario, the debt settlement company may actually cause the debt to grow, not reduce, and cause a consumer to have a publicly searchable judgment in their name.

Minnesota's Unique Law Protecting Consumers

Because of these dangers for consumers working with debt settlement companies, Minnesota has enacted a state statute (Minn. Stat. § 332B) to protect Minnesotans. For example debt settlement companies in Minnesota are not allowed to do the following:

  • Charge up-front fees
  • Tell consumers to stop paying their creditors
  • Tell consumers that the debt settlement company will protect them from interest, fees, collections, lawsuits, or garnishments
  • Tell consumers that the debt settlement company will improve their credit score
  • Tell consumers that the debt settlement company can negotiate a better deal than the consumer could without the debt settlement company
  • Fail to warn consumers, in writing, of many of the items above 
  • Fail to warn consumers, in writing, that they cannot guarantee reduction or elimination of debt
  • Provide or offer to provide legal services unless the person providing the legal advice or services is actually licensed to practice law in the state of Minnesota.

Additionally, because the state of Minnesota wants to protect consumers from unscrupulous debt settlement companies, Minnesota also requires that debt settlement companies be licensed with the state. In fact, it is unlawful for debt settlement companies to operate in Minnesota without a license. 

Before you contract with a debt settlement company, consider the risks, as many debt settlement companies do not fully disclose how their services may actually harm consumers. If you are in a situation where you have contracted with a debt settlement company and you feel they’ve broken the law or taken advantage of you, please reach out to us for a free consultation on whether or not your rights have been violated. 

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