Debt Settlement

Debt Settlement Laws

Debt settlement is a legal solution for consumers who are deep in debt and seeking an alternative to bankruptcy. In exchange for a one-time payment agreed to by both parties, the consumer will pay between 20% to 75% of the amount currently owed. The creditor forgives the rest of your debt and reports it to the credit bureaus as settled.

Debt Settlement Laws

Statute of Limitations

Collectors only have a certain amount of time to sue you for payments, which vary in each state. The statute of limitations is the maximum time limit in which a creditor can file a lawsuit for the outstanding amount against a debtor. The time limit can vary depending upon if the contract was an oral or written agreement, a promissory note, or an open-ended account such as credit cards.

Collection Practices and Rules

The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, unfair, or deceptive practices to collect a debt. They cannot contact you before 8 am or after 9pm and they cannot contact you at work if they know that your employer disapproves of such contact.

Legal Collection Actions

A debt collector may contact you in person, by mail, telephone, telegram, or fax. They are required to send you a written notice telling you the amount of money you owe, the name of the creditor to whom you own the money, and what action to take if you believe you don't own the money.

Illegal Collection Actions

The FDCPA restricts debt collectors from the following:

  • Contacting a third party who does not owe money to the creditors
  • Ruining your credit rating
  • Referring the account to an attorney
  • Garnishment or repossession
  • Extracting money by making false threats
  • Making false claims that they represent an attorney or government official
  • Cannot threaten to have debtor arrested on failure to repay the debt

Debt Collection Harassment Law

Federal law prohibits debt harassment by collection agencies. If the debt collector violates the law, the FDCPA gives you the right to sue in court within one year from the violation. If you win, you can recover damages for your loss, court costs, and attorney's fees. You should always keep copies of everything that the debt collection sends you.

Debt Negotiation and Settlement

Debt settlement and negotiation is the act of contacting your creditors to negotiate a lump sum payoff of your debt. It's best to correspond with creditors via letters so that you have a paper trail of all your actions. You can do this directly or hire a professional debt negotiator. Avoid falling victim to a debt settlement scam by:

  • Asking for references
  • Read everything and don't sign anything or send money until you read all of the terms of the agreement
  • Ask lots of questions because a good debt settlement company will want you to be informed before you sign up
  • Check with the Better Business Bureau

Before entering into an agreement, consumers should request a written guarantee stating they have to return the customer's money if unable to provide the services outlined in the contract.

Debt Collection Laws by State

Debt Settlement Lawyer Help

If you are considering debt settlement, you should contact a debt settlement law firm. They specialize in helping consumers settle their unsecured debts and focus on helping people pay off accumulated bills rather than filing for bankruptcy.

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