So you have may have heard or read about Debt Settlement. Perhaps not?
So what is this mysterious term and what does it mean? Ok, it’s not that complicated and some would argue its self explanatory. Settle your debt. Right? Not so fast my friends. Debt Settlement professes to settle debt and potentially can but the players the companies and the tactics by which it is often achieved are QUESTIONABLE to say the least.
As an attorney licensed and practicing in Florida, New York and New Jersey and with a huge focus on Consumer Debt Relief, I am receiving more and more clients who were once signed into an alleged debt settlement program or had already paid exorbitant amounts of money to such companies and their debt was NOT settled. Furthermore, many of these practitioners fail to inform the client that there are IRS TAX CONSEQUENCES when a debt is forgiven or settled (Over a certain Dollar amount) and worst of all the companies “specializing” in debt settlement are often taking loads of money up front from the debtor, before performing any work, which is often against FTC and State Law. The worst violation I have encountered thus far is the companies that promise to eliminate all unsecured debt (credit cards, medical bills) and don’t inform the client that the proceeding is merely a negotiation and not a legal one, that the creditor and credit card company and or debt collection agency do not have any obligation to talk to your settlement company, let alone actually settle the debt for less than is owed, and yet still many (not all) of these clandestine companies sign up thousands of unassuming hard working every day Americans on a daily basis.
I am not certain of the merits of debt settlement. For one, the debtors credit is already shot at that point and two the negotiation can be achieved and handled by the debtor themselves without having to pay out money to get rid of debt (Counter-productive in so many ways). It is not as if the settlement company has any formal expertise (perhaps former car salesmen as the exception) or need to follow any formal template or system. The solution to TRUE, LEGAL AND REAL debt relief is working through an attorney licensed and specializing in consumer debt relief.
With an experienced attorney one has the ability to view their financial hardships and debt in a total and comprehensive fashion and not in a bubble or vacuum of credit card debt alone. One is able to address and tackle the CAUSE and not the symptom and view and potentially address ALL DEBT both secured and unsecured including credit cards, medical bills, tax liens and mortgage dent and foreclosure if and when applicable. This allows for a plan of action that is comprehensive and does not give the debtor temporary relief or a false sense of security or small pieces of good news while ignoring the 800 pound gorilla sitting right next door! Perhaps the debts are so outrageous that the client is better suited for bankruptcy. Moreover, even if the debt is exclusive to credit cards alone and the client does not want to or cannot qualify for bankruptcy, an attorney can accomplish the same settlement if not with better and more effective results at far less than the cost of a debt settlement company.
Bold statements? No!
The empirical data shows that the settlement companies “fees” including processing and monthly are so large and unfair that they have put the debtor more often than not into a deeper financial hole. An attorney must give a retainer agreement and layout in plain English up front what he or she is doing for the client and how much it will cost. A good attorney will not even take money or start a case if they see that the client’s desires are not legally possible. Also, a credible attorney will NEVER make promises or guarantees about success let alone promise total elimination or settlement or throw out any numbers like the settlement companies promise about at least 50 to 80% reduction in principal. There is also the all too common problem of multiple debtors and credit cards and the inability of the company to get ALL the creditors into a settlement and worse the failure of the settlement company to contact the true and actual creditor making sure the party they are “negotiating” with is the true debt holder and not a third party collection agency without authorization to issue settlements! What about the credit card companies and savvy banks who issue a settlement subject to reserving the right for a deficiency judgment? In English…we will let you pay off the balance and reduce it by 25% but we still reserve the legal right to sue you and come after you for the 25% at a later time. Often these judgments can stay in affect for 20 years and lead to wage garnishments, liens and writs of possession! An attorney will make sure that any such settlement RELEASES the client from any future deficiency judgments. Most importantly the attorney has a huge trump card and bargaining chip. The credit card companies know that the attorney can eliminate their client’s debt legally and in FULL by assisting their client with bankruptcy or LITIGATING AND SUING THE CREDIT CARD COMPANY, BANK AND COLLECTION AGENCIES. Sue, litigate you say? How, why, what? Questions…answers…
There are a myriad of different laws on the federal and state level that govern lenders and specifically credit card issuers for example to list the more common:
* The Truth in Lending Act (TILA)
* State Unfair and Deceptive Acts and Practices (UDAP)
* The Fair Credit Reporting Act (FCRA)
* The Fair Credit Billing Act (FCBA)
Dozens of additional statutes and laws designed to PROTECT THE CONSUMER and govern the credit card companies! One slip up on any of these laws and a competent attorney can litigate and sue the credit card company for such a violation or for example for not offering the client the necessary notices of increases in their APR (annual percentage rate), or for unexplained late fees, or for mailing statements and bills late. The list goes on.
Thus, in my opinion DEBT LITIGATION is a FAR SUPERIOR and a more successful methodology to tackling credit card debt versus signing with an unknown debt settlement company, especially when the creditors are not even willing to bend. You get the best of ALL worlds and solutions with a consumer advocacy attorney. He or she goes into battle with countless armor and weapons ready to fight the debt at its root. The client has an experienced and effective counsel at their side and the attorney is equipped and licensed to challenge ALL of the client’s debt even if it means litigation, if necessary as alluded to above (Sometimes even making money for the client in restitution). Furthermore, by hiring an attorney to handle their debt, the client is not “losing” their opportunity for debt settlement, as the attorney can and if appropriate and more efficient often will negotiate, provided it brings the same or better results and that all the legalities and ramifications are addressed, such as no deficiency judgments and explaining the IRS tax consequences. Finally, an attorney can and often will drop the ultimate bomb and simply end it all painlessly and effectively by filing bankruptcy on behalf of the client if and when appropriate. (For another conversation as to when bankruptcy should be explored and employed).
In summary, you are being bombarded on TV and RADIO about “magical” debt elimination programs or hearing and reading of debt settlement. BEWARE there are many unscrupulous folks and companies out there praying on those in debt and who are desperate often promising false things and taking loads of their hard earned money and doing no work.
Are there legitimate settlement companies and players? Absolutely! Without any “if” or “buts.” Just like not every attorney or doctor is reliable and honest. I am not judging the industry but here to educate the uninformed or curious as to the process, players, the pros, cons and alternatives.
Whichever way you slice it, debt is an ugly game and the faster and cheaper it takes to get out of it, the better. Make sure the methods used and players engaged in them are legal and that you are not digging a deeper hole for yourself. Make your decisions on facts and law and not emotion, out of sheer desperation or based on cunning and false advertising. Know your rights and remember while debt is a stressful matter, there are multiple laws in place to 1) protect you and 2) offer recourse and even potential restitution.
Consult with an attorney who knows how to use these laws and who will protect you. Any reasonable law firm should offer a free and comprehensive consultation.