Do It Yourself Debt Settlement: Legal Issues

Individuals with unsecured debt do have options in working directly with creditors in an attempt to resolve the outstanding debt and eliminate lawsuits. However, there are legal issues involved in do it yourself debt settlement programs that need to be carefully considered. Working directly with the creditor, a debt collection company or another third party that has bought the outstanding debt is the best way to obtain a debit settlement. Consulting with an attorney before entering into any agreement is highly recommended.

Why Creditors are Willing to Settle Unsecured Debt

Do it yourself debt settlement focuses in on negotiating the debt amount, interest rates and repayment options to your benefit. However, it is also a better option for the creditor since the debt is unsecured and they have no collateral attached to the debt. Getting a smaller percentage of the total amount owed is still profitable to the company compared to receiving nothing at all.

Time-Barred Debts

The first item to check is the statute of limitations for debt collection within your state. Each state has a different statute of limitations that can range from three years to over ten years. If the debt collection falls outside of the statute of limitations the debt is considered to be time-barred, meaning the debt cannot be collected through a lawsuit and the courts.

Creditors can still attempt to collect these debts and may even threaten lawsuits and legal action. Being able to identify if the debt can be collected through the courts may be challenging since state law will take precedent over federal laws.

Credit Reporting

Most debts can stay on your credit report for up to seven years, even if they cannot be collected through the court and are considered to be time-barred. It is important to understand that not paying a debt or attempting to settle with the creditor can impact your credit score significantly. Late payments don't fall under the statute of limitations and can also negatively impact your credit score.

Debt Settlement Agreement and Lawsuits

While not likely, it is possible for a creditor to file a lawsuit on an outstanding debt even if you have agreed to a do it yourself debt settlement plan. In most situations this can be avoided by paying a large lump sum on the debt and making all required monthly payments as per your agreement. Get everything in writing and keep records of all payments made in the event a lawsuit is filed against you.

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