Debt Negotiators
Mostly debt negotiators operate on a very specific idea. This idea is that you'll save up the money in order to make a settlement offer to every lender in turn until the debts are gone. This is an alternative to a debt management plan, which is offered by more traditional credit counselors, which in full over time pays your debts back with reduced interest rates and as a result each creditor gets some money each month.
Debt negotiation or debt settlement sounds like it should save you some and time money. And sometimes avoid bankruptcy.
Most debt settlement services deal with people who actually want to pay their debt back but can't keep up for longer with the accumulating fees and interest. If they can’t stop those charges, they hope you can’t do simple math.
If you don’t pay a credit card back for a couple years, the bank gets upset. It usually results in banks suing you. It will be hard to save up the money to negotiate settlements with all your creditors if one of them is not cooperating and instead garnishes your bank account, paycheck, and/or slaps a lien on some of your property.
Debt Negotiation Regulation
Debt negotiation is sometimes regulated by state law. Many states provide that those regulations do not apply to a licensed attorney (since attorneys are separately regulated by the bar). Some debt negotiation firms will be run as law firms in other states with affiliated lawyers in your state, in order to try to get around these requirements.
If they claim to have a licensed attorney who can work on your case, you ought to be able to talk to her. After all, the implication is that she is your lawyer. It would surprise me if that was OK with the debt negotiation company. In some cases, it may come as a surprise to the lawyer that their name is being used in these offers.
While you are saving up the funds to make settlement offers to your creditors, someone has to hold the money. The consumer debt negotiator will normally want the money put on deposit with them directly (in something that sounds like a trust or escrow account but may only be an entry in their books) or on deposit with an affiliated bank which doesn’t send you statements, give you checks, or make it easy for you to withdraw the money except with the help of the negotiator.
The first several months of payments into the account are taken immediately by the company. This will be several thousand dollars in many cases. Usually the contract terms make this fee non-refundable.
Normally debt negotiators work from smallest-to-largest accounts. They settle the little ones because they’re easy. You put aside $500 and the $1,000 store credit card you had goes away. See how easy it was? But as in real life, the largest bills will be the hardest targets to meet — and they will accrue interest much faster than the little ones do. So their fees ought to be paid based on the amount of benefit they actually get you as they go along.
Consumer Debt Negotiation Companies
Most debt negotiation companies include a clause in their long contracts that requires you to arbitrate any dispute with them, and waive the right to pursue a class action.
Debt negotiators will sometimes mention this in the fine print of their contracts and in their marketing materials. But it’s passed over as though it is nothing of importance and a rare problem.
Bankruptcy lawyers can usually answer most or all of these questions positively. We understand it may feel wrong sometimes. But it isn’t unusual for us to talk with folks who have been made poorer by debt settlement companies and yet have no less debt. And their legal situation has gotten much worse. Sometimes the hardest choice is the right choice.
