Is hiring a debt settlement attorney to settle your debt worth the extra price? The following blog post shares the benefits and downsides of using a debt settlement lawyer.
The benefit of Using a Debt Settlement Attorney:
1.) Debt settlement lawyers can pursue legal action against creditors if they violate consumer protection laws, resulting in debt dismissal or extra savings.
The best debt settlement lawyers will pursue legal action against creditors and debt collectors if they violate consumer protection laws, including the Credit Card Act, Fair Debt Collection Practices Act (FDCPA), and Fair Credit Report Act (FCRA), to name a few.
Knowing they can get sued, third-party collection agencies may turn around after being threatened with a lawsuit over a violation they committed and dismiss the debt.
At the very least, lawyers can threaten legal action against a creditor after finding out they violated a consumer protection law. That alone can act as leverage to negotiate a better settlement on the debtor’s behalf.
2.) A debt settlement attorney can provide legal defense if a client is sued over a credit card debt while enrolled in the program.
Since creditors don’t get paid monthly payments after consumers join a debt negotiation program, clients can get sued over an unpaid debt. This is one of the main drawbacks of a debt settlement program. Attorney representation can come in handy in these situations.
A creditor will file a credit card summons to collect on a past-due credit card debt, requiring the consumer to attend a court appearance. Certain creditors, like Discover, are quick to issue a credit card summons to collect on a debt.
A lawyer can intervene in these situations to get the lawsuit dismissed and settle the debt or work towards debt dismissal. Credit card lawsuits are often flawed with inaccurate information and errors, whereas if a debt settlement attorney fights it, the case could get dismissed.
However, non-attorney debt settlement services can also effectively resolve a credit card summons. Many of the best debt relief companies have a department of negotiators trained explicitly in negotiating and settling debt after it turns into a summons.
The bottom line:
It does not require a debt settlement lawyer to negotiate and settle a credit card summons. And after creditors see clients represented by a lawyer, they automatically assume the consumer has money; otherwise, how could they afford to hire an attorney? Consequently, settlement offers may be less attractive.
3.) A lawyer can assist debt settlement clients with filing for bankruptcy if they eventually need to go that route.
Some consumers join a debt relief program due to financial hardship, only to find themselves deeper in financial hardship as time goes on. As a result, they can no longer afford a debt settlement program’s monthly payment and need to file for bankruptcy.
Debt relief lawyers can assist consumers with settling debt and filing for bankruptcy. So in the future, if a client that started as a debt settlement client of the law firm decides they need to file for bankruptcy, that same law firm can assist them. In addition, a reputable debt relief lawyer may offer the client a discount for its bankruptcy service since the client has already paid the firm fees for debt settlement.
4.) A licensed attorney can advise consumers facing credit card lawsuits and legal action from creditors.
Debt relief attorneys can provide the debtor with legal advice. For example, suppose you have multiple debt collection accounts and lawsuits. In that case, legal advice can be a valuable benefit provided by a debt relief attorney, advising you on your most cost-effective solution.
They may look at the details of the situation and advise you not to pay a debt because they’re finding it’s not valid due to various reasons, and instead, the plan will be to sue the collection agency while settling the other debts.
5.) Creditors must direct all communication to your attorney after they get notified that you have attorney representation.
Creditor harassment can occur when enrolled in a debt settlement program. However, attorney-based programs will stop that creditor harassment quickly because “by law,” after a debt collector knows that an attorney is representing you over a debt, the debt collector must stop communicating with you immediately and direct any future communication to your attorney.
Downsides of Using a Debt Settlement Lawyer:
1.) Debt settlement attorneys may charge up-front fees as part of their hourly rate.
The Federal Trade Commissions (FTC) laws and regulations prohibit debt settlement companies from charging up-front fees. Legally, fees can only get charged after a debt is settled and at least one payment is made towards that settlement. On the other hand, lawyers can charge an hourly rate, and debt settlement programs through a law firm often include up-front fees.
Companies like Accredited Debt Relief and National Debt Relief only charge fees after successfully settling a client’s debt, ensuring clients get results or don’t pay a dime.
Source: FTC, Debt Relief Companies Prohibited From Collecting Advance Fees Under FTC Rule That Takes Effect
2.) Debt settlement lawyers often don’t specialize in debt settlement and have small customer service departments.
Law firms offer a variety of services, not just debt settlement. As a result, you often won’t have a large customer service department that you can call in to and get assistance from if you have questions about your program. And you certainly won’t be able to call your attorney any time you want if you have questions because attorneys are busy every day in court defending clients.
You may find yourself calling the law firm and leaving many messages with the firm’s receptionist, waiting days to get a response which can be frustrating.
3.) Beware of debt settlement law firms that are just a big front, aimed at being able to charge up-front fees.
Debt settlement companies have been known to partner with lawyers as a front. They claim to offer an attorney-based debt negotiation program.
But the truth is, it’s just a big front. These companies partner with law firms so that they can charge up-front fees. As a result, clients may pay high fees and get poor results, ending up with more debt and in worse financial shape.
4.) The cost of debt settlement lawyers can be more expensive than non-attorney programs.
First, as mentioned above, if creditors see that clients have attorney representation, they may assume the consumer has income and may not be willing to settle at as low of an amount.
Secondly, law firms may charge higher fees, including hourly, service, and settlement fees. Debt settlement lawyers may charge more than 25% of the total debt enrolled in the program. If you are contemplating using a law firm to settle your debt, closely evaluate your contract and check for the total fees they are proposing to charge and how they are collected.
Final Points to Consider Before Hiring a Debt Settlement Lawyer:
Suppose you are considering hiring a debt settlement lawyer. In that case, it’s a good idea to research and compare different lawyers and firms to find one with a strong reputation and successful track record. In addition, consider consulting with a financial advisor or credit counselor to explore other options for managing your debt.
Attorneys may be required to assist consumers in specific industries. For example, you may need a licensed attorney to help you file for bankruptcy debt relief. However, the best debt relief programs are not through a debt negotiation attorney.
Check out our list of the best debt relief companies for 2023. Lenders, debt settlement, and consumer credit counseling programs are included. We always recommend consumers learn about their debt relief options and compare offers from multiple companies before deciding on any particular debt solution.
Debt settlement, attorney or non-attorney program, can negatively affect a person’s credit score because creditors are not paid monthly, resulting in late payments and, eventually, charge-offs and collection accounts. In addition, no debt settlement lawyer or company can guarantee creditors will settle for a specific rate. Debt settlement can also result in a portion of a debt being forgiven and taxes owed on that amount as if it was ordinary income. Consult with a licensed accountant to explain the potential tax consequences of debt forgiveness and advise you on whether or not you would have to pay taxes on the savings from a settlement.