If you are dealing with unimaginable financial obligations, especially those where you owe debt then debt settlement is surely a viable option that can work wonders for you. Have you ever wondered what debtors do when they can’t repay their debt and it keeps piling up? Well, fortunately, there are debt relief options like debt management and debt consolidation etc that can help such debtors struggling financially.
Debt settlement is a common financial strategy people often use when they are stuck with an overwhelming amount of debt. However, people only use it when it’s their last resort and the only other alternative is bankruptcy. The reason is that no matter which debt relief option you choose, it’ll come with some consequences. In the case of debt settlement, your credit will suffer a lot and your settled account will show on your credit report for 7 years. Despite the negative impact, debt settlement does help resolve debt if you are in dire need. It’s important that before you initiate any negotiation, you understand your legal rights to make more informed decisions and avoid any exploitations.
Important Legal Rights During A Debt Settlement Negotiation
1- Fair Debt Collection Practices Act – FDCPA- Right To Protect Yourself Against Harassment
The FDCPA federal law is specifically made to govern how third party debt collectors behave with debtors. As per the law, these collectors are strictly prohibited to use any abusive language or any deceptive practice to recover the debt. The law offers several other protections to debtors;
- No threats and harassment: Collectors cannot threaten or harass the debtor and they cannot even use any sort of profane language.
- Contact restrictions: Collectors are allowed to call the debtor after 8 am and before 9pm. They cannot call or contact you at work especially if you’ve told them not to.
- Right to request for no contact: As a debtor, you have the right to stop the collector from trying to contact you. This must be done in written form and the collector would only be allowed to approach you to inform you about a lawsuit or for the confirmation of a receipt etc.
- Validation of debt: Under the FDCPA, the collector must send you a written formal notice within the first five days of contact. The notice must contain all the correct information about the amount due, the name of the creditor and your right to dispute within 30 days.
2-You Have A Right To Dispute The Debt
After receiving the validation notice, you can dispute the debt within 30 days. Once you dispute it, the collector has to stop all of his collection efforts until he provides verification of the debt. Verification means there must be a copy of the bill or a judgement that your collector must send you. Disputing a debt doesn’t mean you won’t owe it anymore, in fact, it’ll just help you ensure that you aren’t paying someone else’s debt, the correct amount is being collected and that the correct people are collecting it from you.
3-The Right To Negotiate
No creditor is legally obliged to accept your settlement offer but as a debtor, it is your right to at least offer a settlement and give the negotiation a try. In debt settlement, you negotiate with the creditor to reduce your debt and in return you pay him a lump sum of the total amount to resolve the debt. You can even propose a payment plan or a hardship agreement or simply negotiate reduction in interest. It’s best if you hire a professional debt settlement company here like Mountains Debt Relief. Such companies provide the most professional services with potential positive outcomes. You can also negotiate a debt settlement on your own.
4- Fair Credit Reporting Act – FCRA- Right To Accurate Credit Reporting
Settling the debt for less than the full amount means it will be reported on your credit as “Settled” or “paid for less than the full balance”. Such reporting is legal but you still have the right to dispute it in case you find any errors. If your creditor reports inaccurate information on your credit then you have the right to dispute it with the credit bureau. To decrease the damage of debt settlement on your credit, it’s best if you first request your creditor to report it as “paid in full”. Some creditors do agree to it but it should be done before the negotiation.
5-Rights When Using Third Party Debt Settlement Companies
In case you don’t want to do debt settlement yourself and you want to use third party services then yes, it’s legal and the best part is that the FTC has special rules for such settlement companies in order to protect the consumers;
- They Cannot Charge Any Upfront Fees: No matter which company you choose, you shouldn’t ever pay them any fee upfront. Under the FTC rules, debt settlement companies can only charge their fee once they’ve settled your account.
- There Are Disclosure Requirements: All settlement companies have to provide you complete details before starting the settlement. From how long it would take to see the results to what amount you’d need to pay as a lump sum and what the consequences will be, companies must disclose all the information to the consumer.
- Right To Cancel: As a consumer you can stop and leave the debt settlement program any time you want and the company cannot charge you any penalty for canceling the settlement.
6- You Have The Right To Legal Reporting
During a debt settlement negotiation, you as a debtor have the right to consult an attorney especially if you are unsure and unaware of the legal implications of the process. In case you are facing any legal action from the creditor then of course you should hire an attorney. This will just help you protect your legal rights and ensure that the agreement is sound.
Potential Pitfalls In Debt Settlement
Now that you know all about your legal rights, it’s important that you understand how grave debt settlement is and that it does come with some consequences. Here are some potential pitfalls of debt settlement that you should be aware of;
Tax Consequences:
If your forgiven debt exceeds $600, the IRS will consider it as taxable income and you’ll have to pay taxes on it.
Credit Score Impact:
Debt settlement can bring down your credit score especially due to the missed payments. Moreover, your settled account will stay on your credit report for 7 years which might stop some of your future lenders from approving your loans.
Lawsuits: You can get sued even during the process of debt settlement. Your creditor isn’t obliged to accept your settlement offer and he can take legal action against you for the unpaid balance.
It is quite important to understand your rights first especially in order to protect yourself against scammers. When you know the ins and outs of your rights, it’ll be easier for you to make a more informed debt settlement decision.
Overall Verdict
Debt settlement is a crucial financial decision and before you begin with it, you must know your legal rights. Whether you are dealing with your creditors directly or using a third party debt settlement service, if you stay informed, it’ll help you avoid pitfalls and protect your legal and financial rights. If you are uncertain about which path to use then it’s best if you see professional help and hire an attorney to help you through a smooth and seamless debt settlement. It’s important that you stay patient during the process because debt settlement can take anywhere between months to years. You just have to stay consistent with your efforts, follow the law, know your rights and negotiate professionally.
FAQs
Q1. Is Debt Settlement Legal?
Yes, debt settlement is completely legal. You have the right to negotiate with your creditor to reduce your debt and this can be done directly or through a debt settlement company.
Q2. Are Creditors Obligated To Accept Your Debt Settlement Offer?
No, creditors are not legally obligated to accept your debt settlement offer. However, they might accept it in case they are sure that you won’t be able to pay them off the full amount.
Q3. Will Debt Settlement Hurt My Credit Score?
Yes, one of the downsides of debt settlement is that it’ll negatively impact your credit score. A settled account will stay on your credit report for 7 years and this sometimes makes it difficult for people to get more loans in the future as lenders see such debtors as risky.
Looking for a smooth and seamless debt settlement negotiation with your creditor? Try Mountains Debt Relief services and you sure would be amazed by the successful outcome without any hassle.