Tarry A While To Know The Debt Settlement Laws And Your Rights
Assuming that you have maxed out your credit cards and are now deep in debt it is likely that you will feel overwhelmed. Several questions will keep you haunting day and night and even in your dreams. You will wonder how you can ever get out of debt and about the ways in which you can pay it down.
In such a condition when you are mentally stress if you suddenly learn that there is a company that claims to help you to reduce or even eliminate your debt for ‘pennies on the dollar’ it will be naturally very tempting. You will feel that this company is the perfect answer to your questions and a godsend solution to all your debt and financial problems, right? Wrong!
The consumer protection agency Federal Trade Commission warns about these companies and asks you to slow down and consider all the aspects before you jump into any conclusions. You must believe that debt is your responsibility and there is no way you can incur it and not pay back, no matter how small or big the outstanding amount is.
Know the risks first
To know about your rights and the laws to protect it you must first know about the risks involved and the consequences of debt settlement and the features of the debt settlement companies.
- Ideally, all debt settlement programs are typically offered by for-profit companies only. That means they will work with a focus on their interest more than yours.
- The process involves negotiating with your creditors by the settlement company so as to allow you to pay a reduced or a ‘settlement’ amount agreed upon to resolve your debt.
- The settlement amount is actually a lump sum paid to the creditor that is far less than the actual amount of loan outstanding.
- To create the lump sum amount according to the settlement program you will be asked to set aside a particular amount affordable by you every month in a dedicated savings or escrow-like account
- By the time the agreed settlement amount is reached eventually you will be asked to stop making your monthly payments to the creditors.
It is here that the features of debt settlement programs bring in the inherent risks in it though the debt settlement company may be able to settle a multiple of your debts. It is therefore suggested that you go through the debt settlement reviews before you opt for it.
- Risk 1: Since a debt settlement program will require you to deposit money in an escrow savings account for about 36 months or more before your debt is settled, you may find it a bit difficult to make these payments long enough. You may tend to drop out the programs more often than not. Therefore, before signing up for such a debt settlement program you must carefully review your budget so that you are sure that you are capable financially to set aside this required amount every month for the entire length of the program.
- Risk 2: There is no compulsion or legal obligation of your creditor to agree to negotiate with you for any settlement of the amount outstanding. That means if you want to settle multiple debts and have such an agreement with the debt settlement company, the company may not be able to settle a couple of your debts even if you deposit the said monthly amounts required by the program. Moreover, since it is a common practice by the debt settlement companies to negotiate first the smaller debts it will leave the interests and fees on your large debts growing. There is no law to change these practices.
- Risk 3: Since you will stop making payments to your creditors for the entire duration of the program it will surely have a negative impact on your credit report. There are also other consequences involved especially when a few debts may not be negotiated. Your debts will continue to accrue late fees and penalties and will become unmanageable putting you further in the debt hole. You will get calls from your creditors or debt collectors asking for repayment as they will abide by the law to obtain their money due. According to the law the creditor may even sue you for nonpayment.
In such a situation if the creditor wins the lawsuit they will also have the right to enforce the judgment by garnishing your wages or putting a lien on your home. This will further jeopardize your financial condition.
The law and your rights
According to the law formulated by the Federal Trade Commission, the debt settlement companies are regulated and prevented from any abusive processes or any malpractices. There is a lot of debt settlement scams reported and most programs are deceptive and fall short from delivering the desired results.
The law prohibits these companies from:
- Making false promises or guarantees for settling your debts
- Assuring specific percentage of amount reduction
- Collecting there fees before the service is completed
- Not explaining the risks associated with the programs
- Touting a new government program
- Guaranteeing your unsecured debt to go away
- Telling you to stop communicating with the creditors and
- Suggesting not taking debt collection calls or lawsuits.
The law provides you with the right to research about the debt settlement companies with your state Attorney General or a local consumer protection agency. You will come to know whether or not there are any consumer complaints recorded against the firm you want to do business with.
Ask the state Attorney General whether or not the company needs to be licensed to work in your state and if so find out whether it is licensed or not.
Also know about the fee structure and when they will charge it from you. Know about the disclosure requirements according to the FTC rule regarding the price and terms of services, success results, offers and also about the tax consequences because the money you may save from debt settlement is considered a taxable income by IRS according to the law.