Dealing with overwhelming debt can be incredibly stressful. When you struggle to make minimum payments, and your creditors hound you, it is easy to see what makes debt settlement an attractive option. However, you must understand the risks and consult a lawyer before making any decisions.
You may be in significant debt to one or more creditors and having trouble making your payments. Debt can be overwhelming, and some companies may claim to offer you a way out of your problems. They may tell you they can cut what you owe on the way to a debt-free future.
Just understand that there is no such thing as something for nothing, and anyone who makes you this promise may be taking advantage of your financial situation.
Debt settlement companies are not always what they seem when they make promises using glossy sales literature, and you can end up in worse financial peril after paying for something you may have done alone.
You can take legal action if an unscrupulous debt settlement company has exploited you. It does not matter that you chose to deal with the company; if it made misrepresentations that cost you money, you may have a cause of action under federal or state law.
First, contact a FDCPA lawyer to review your legal options and determine whether you can file a lawsuit.
A lawyer can guide you through the debt settlement process, ensuring you are fully aware of the potential risks and pitfalls. They can review any agreements or contracts a company may ask you to sign, identifying hidden clauses or unfair terms that may harm you in the long run.
It does not cost you anything out of your own pocket to get this assistance.
Debt Settlement Is Supposed to Make Your Life Easier
You may owe money to more than one creditor and have multiple credit cards with outstanding balances. Each credit card can charge you late fees and interest rates of up to 30 percent.
You may struggle to make the minimum monthly payments, and your principal amount may balloon because of high interest rates. This situation can send you into bankruptcy. Before that point, you may receive harassing and abusive calls from debt collectors who purchased your debt.
You can receive numerous offers from companies that claim to be in the business of debt settlement. These companies tell you they can negotiate with your debt collector to settle your debt for less than the amount of money you owe. They may claim to act as your advocate and savior when dealing with credit card companies and promise you a better financial future, but they will undoubtedly benefit.
Debt Settlement Companies Purport to Negotiate with Your Creditors
Debt settlement companies will advance one sum of money upfront to all creditors to “settle” your debt. In reality, the settlement does not make your debt go away. These companies pay off your outstanding debt, but you are now in debt because they have not done anything for free.
Although you no longer have to make monthly payments to individual creditors, you do need to pay the debt settlement company and will still have to set aside money in an account to pay it.
Although you have a right to interest on this money, it still represents funds you must use to pay the debt settlement money company, which you cannot access. The debt settlement company is not taking as many risks because you already have this money in a particular bank account.
Doing Business with Debt Settlement Companies Can Make Your Life Harder
Debt settlement is different from the panacea that you may think. Companies offer you a chance to reduce your interest rate and consolidate the debt that you owe under one roof.
While this may seem like a good solution, you can still face a difficult financial situation if you try to use their services. After paying fees, you may owe a large sum to someone else.
Some debt settlement companies charge you a fee of up to 25 percent of the amount you owe, which means that it may not even make financial sense for you in the first place to use their services. You can end up in an even worse economic situation because you accepted help from a company that promised to improve your finances.
Instead, you may quickly find yourself on the path to bankruptcy because you still have a debt you cannot pay.
Debt Settlement Companies Often Benefit at Your Expense
Debt settlement companies are not necessarily in it to help you. These are for-profit companies that make money when you borrow money from them.
Not only are you paying them a relatively high interest rate on the principal, but they also impose fees on you to consolidate your debt and make the loan. These companies tell you they have settled your debt, but you still owe money, and there will be consequences if you fail to make payments on this new loan.
The Risks of Using a Debt Settlement Service
There are numerous risks and penalties for using a debt settlement company’s services that can include:
- You may owe income tax on forgiven debt because federal law can treat it as income.
- Your credit will take a hit when debt settlement companies settle your debt for less than the amount you originally owed.
- Some creditors may not want to work with debt settlement companies because they still hope to get more money or do not want to work with the individual company.
- The debt settlement company can impose significant fees and penalties if you fail to keep up with your payments.
Whether it makes sense to use a debt settlement and consolidation company depends on the facts and circumstances of your situation.
Some companies charge reasonable fees, allowing you to make a dent in your debt and keep your head above water. However, being careful about who you deal with is best because some companies may exploit you through dishonest practices.
You Can Do the Same Thing a Debt Settlement Company Does
You can do the same thing a debt settlement company does on your own and negotiate with creditors without paying exorbitant fees. Your creditors may have an incentive to deal with you because receiving something from you may be better than nothing.
At a certain point, your creditor may have to write off your debt and sell it to the debt collector for pennies on the dollar.
You may have to declare bankruptcy, and then creditors will need to fight with others to get a fraction of what you owe if they can get anything. You may make them an offer to reduce or settle your debt that they will accept.
If you have some money at your disposal, you can make a lump sum offer to your creditor, and it may make you a counteroffer that you will accept.
Just know that you have other options than dealing with companies acting in their best interests and not yours.
You Can Consider Bankruptcy As an Option
Bankruptcy may also be an option for you if you have significant debt. You may accomplish the same exact aims in Chapter 13 bankruptcy, where you can restructure the debt that you owe.
This legal process earns you more time to pay and eventual debt forgiveness when you emerge from Chapter 13 bankruptcy. If you meet the means test, you can qualify for Chapter 7 bankruptcy, meaning immediate debt forgiveness after bankruptcy.
The prospect of your bankruptcy can lead a creditor to become more flexible in debt settlement negotiations, and you do not need to pay a company to utilize this leverage.
You Should Consider Hiring an Attorney for Debt Settlement
Finally, consider hiring a debt collection attorney to have them deal with creditors on your behalf. They can secure a more favorable settlement and protect your rights throughout the process.
The advantage of using an attorney for this task is that they are a fiduciary and owe you the duty to act in your interests. A debt collection attorney must put your interests ahead of theirs at all times, and they should avoid conflicts of interest.
A lawyer also cannot charge you excessively high fees because it violates the rules.
You Can Sue the Debt Settlement Company If it Has Broken the Law
Of course, you always have legal remedies if you are stuck dealing with a company that has broken the law and taken advantage of you. There are numerous ways that you can reach this conduct through a lawsuit.
First, you have a contract with the debt settlement company. It may have made misrepresentations that induced you to enter into any agreement, which can constitute common law fraud.
Then, you can get back the money you lost because of these misrepresentations. You may even qualify for punitive damages when you show an egregious pattern of misconduct or intentional lying.
A lawyer with experience in debt settlement lawsuits can navigate the complex legal landscape on your behalf and build a strong case. They can evaluate the circumstances of your situation, identify any violation of laws or regulations, and determine the best course of action to pursue.
Filing a Lawsuit Under the Credit Repair Organizations Act
There is also a federal law called the Credit Repair Organizations Act.
This law prescribes several prohibited practices that debt settlement companies may not use in their business, including:
- Having contracts with you that are not in writing (the contract needs to cover every term)
- Requiring advance payments for their service
- Not allowing you to cancel the contract under certain circumstances, which is your right
- Making false or misleading statements
The CROA gives you a private right of action to sue the debt settlement company directly. An appeals court decision has made it even easier for you to sue these companies when they have taken advantage of you. The law entitles you to seek the greater amount you paid the debt settlement companies or the damages you have suffered.
In many cases, the latter option is what you will seek because you have lost a considerable amount of money due to their fraudulent practices. You may even qualify for attorney’s fees, so the money to pay your lawyer does not come from you. In some cases, you can even get punitive damages when the debt settlement company acts particularly fraudulently or egregiously.
Why You Need an Attorney for a Debt Settlement Lawsuit
Debt settlement companies take advantage of desperate people who despair at the money they owe. They take a chance that you will never learn of your legal rights and take action against them.
A debt settlement lawsuit lawyer can review your case and help determine whether you have grounds for a lawsuit. They know the law and are not afraid of any big company.
You need legal help to present the strongest possible case and put you in a position where you may recover financial compensation.
It does not cost you any money out of your pocket to get help from a debt settlement lawyer. No retainer is required, nor are you sent hourly bills while your case is pending.
Thus, paying a debt settlement lawsuit lawyer does not worsen an already challenging financial situation. If you win your case, an attorney’s fees may not even come from the proceeds of a settlement or jury award because the law allows the attorney to recover payment from the debt settlement company.
Contact A Debt Settlement Attorney Today
The road to recovering from debt is not easy, but having a knowledgeable consumer protection attorney by your side can make all the difference. They can guide you through the legal aspects of debt settlement and protect your rights throughout the process.
Remember, it is always better to be safe than sorry when it comes to your financial future. Do not hesitate to contact an attorney experienced in debt settlement to explore your options and make informed decisions.