Debt settlement offers an alternative to bankruptcy for many people who find themselves deep in debt and unable to pay back loans according to the original terms of the agreement. It is important for consumers to fully understand common debt settlement practices before proceeding with the debt negotiation process. While many consumers turn to attorneys or debt settlement companies for assistance with these matters, other debtors negotiate settlements directly with the creditors on their own.
1. Know Your Consumer Rights
A recommended first step for anyone facing debt problems is to get information about legal rights. As of 2010, the FTC has recently introduced new laws pertaining to creditors and debtors. These laws were put in place to protect debtors from the unscrupulous practices of certain debt settlement companies. The law now requires a written agreement between the creditor/collector and the debtor seeking assistance, prohibiting the collection of any fees without this agreement. Another new requirement pertaining to settlement fees states that a fee can only be charged after the company has a proven track record negotiating and settling at least one of the consumer’s debts.
Legally, debt settlement companies must establish a trust account with a financial institution for the collection of consumer funds. This account must be owned and controlled by the consumer without any withdrawal restrictions or penalties. Regulations further prohibit any referral fees between the settlement company and financial institution used.
Knowing what debt collectors are allowed to do is also helpful. Debtors can review FDCPA provisions as shared by the Federal Trade Commission for complete information about allowable collection practices. A debtor has recourse if collectors violate the law. The tables can be turned on violators of these provisions. Take the time to read the Fair Debt Collection Practices Act.
2. Pay Legitimate and Collectible Debt
All debt is not collectible. You should consider this before deciding on a repayment plan with debtors. Customers make the mistake of paying back past obligations that are no longer required by law. Companies often continue to chase down debtors for payment long after the debt is no longer valid legally. Any financial obligations that have been charge off should not be paid. Companies can legally write off bad debt for tax purposes to clear the books. If the company sent you a Form 1099 in the amount of the debt you owed them, then they have forgiven the debt. The good news is that you no longer owe the debt. The bad news is that you can be taxed on forgiveness debt as income.
There is also a statute of limitations imposed on bad debt that limits the amount of time that a debtor has to legally collect a debt. This period of time is determined by the state. Checking state laws is highly recommended to ensure that debt that has legally expired is not paid back.
Another factor to be considered when paying debt is ensuring payments are sent to the right destination. Companies often sell debts to collection agencies. Once a debt is sold to a third party, that debt is then owed to the new owner of the debt. Debt can also be sold a number of times. For clarification purposes, it is wise to confirm that the debt is legitimate by sending out a verification letter to any company trying to collect money. This will eliminate confusion. It will also verify that the collection agency is licensed in your state.
3. Record Conversations
By recording a conversation with a creditor or collection agency, a consumer has proof of verbal agreements made. Consumers can check state laws to ensure that recording is legal before using this tactic. There are 35 states that allow taping a conversation with a creditor or collection agency. In addition, there are 15 states that allow recording a conversation after receiving permission from the other party being taped. You can use Skype and even Call Graph to help record conversations with creditors.
4. Be Polite without Giving Up Personal Information
While it is often hard to maintain a polite attitude with creditors, it is helpful. AOL shared that some collectors can get rude and even invasive. It is also important to remember that creditors are simply trying to do their job. With that in mind, it is crucial that debtors remember to protect themselves. Consumers should never give out personal information to creditors. You have the right to not answer if they ask for bank account numbers and asset information. Politely tell them you are not comfortable giving out that information when necessary.
By knowing what creditors and debt collectors can and cannot legally do, you can ensure you get the best results from your debt settlement. You can also legally reduce your credit card balances by up to 50% or more in as little as 24 months with successful negotiation and settlement.