What Happens When You Settle a Debt?

New companies are popping up around the country to help consumers settle a debt or mountain of debts. While settling debt may sound like a great way to spell relief, not all companies have a consumer’s best interests in mind.

Aren’t All Debt Relief Companies the Same?

No, they are not all the same. Some debt relief companies are scams that promise to reduce your debt, but end up only collecting fees from you while your debt remains nearly stagnant while interest fees pile up.

What Laws Govern These Debt Settlement Companies?

The Fair Credit Reporting Act (FCRA) oversees the accuracy and fairness of files of consumer reporting agencies, including credit bureaus. The Credit Repair Organizations Act (CROA) bans false or misleading representations and requires certain disclosures in the area of credit repair services, which cannot demand advance payment for their services. The Telephone Consumer Protection Act (TCPA) provides consumers protection from harassing phone calls and text messages.

In addition to these federal laws, many states have enacted their own laws to protect consumers from unscrupulous loans or debt settlement scams.

How Does Legitimate Debt Settlement Work?

A legit debt settlement company will agree to contact your creditors to negotiate a better payment plan or to settle the amount of debt at a reduced price.

If you’re not able to pay a lump sum, you may have a scheduled payment plan you negotiate with the debt settlement company. You may need to deposit money into a separate account that the debt settlement company uses to pay off your negotiated amounts to creditors.

When the debt settlement company reaches a negotiated settlement with a creditor, the debt settlement representative assigned to your case will reach out to you to approve or reject the settlement. When you agree to a settlement, the debt settlement company can start charging you for their services.

Will Creditors Continue to Call Me During the Debt Settlement Process?

Most legitimate debt settlement companies are able to stop the harassing phone calls because they take the responsibility for negotiating the settlement.

Will My Credit Score Suffer as I Try to Settle a Debt?

Unfortunately, yes, it probably will because the delinquent account will appear on your credit reports.

Could I Incur More Debt if I Work with a Debt Settlement Company?

You could incur more debt if you stop paying at least the minimum payments on your debts because of late fees or interest charges. In addition, any portion of a forgiven debt may be deemed taxable income that will require you to pay taxes.

Do All Creditors Negotiate with Debt Settlement Companies?

No. Creditors are not required to negotiate a lower amount to settle a debt simply because they are contacted by a debt settlement company. Certain creditors entirely refuse to negotiate with debt settlement companies.

With Such a Great Economy Right Now, Am I the Only One Struggling?

No. According to written testimony of Federal Trade Commissioner Rohit Chopra, who presented before the U.S. House of Representatives Committee on Financial Services on Thursday, Sept 26, 2019, “According to multiple estimates, there are more than 70 million Americans with past-due bills in collections.”

Chopra went on to say the FTC needs to tackle abusive debt collection and lending practices.

Join a Free Debt Consolidation Class Action Lawsuit Investigation

You may qualify for this investigation if a debt settlement or credit repair company did one of the following:

• Sent a loan offer or offered credit, rejected your application, and then pitched their debt program;
• Required payment for credit repair services up front and you were not provided with a full disclosure in writing; and/or
• Promised to help but left you in either the same or worse financial condition.

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This article is not legal advice. It is presented
for informational purposes only.