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Ohio Debt Settlement
If you’ve fallen behind on your payments, you’re probably looking into how to decrease your burden. Part of this is negotiating with your creditors to reach a debt settlement.
While many debt settlement companies exist and will act as an intermediary between you and your debt collectors, they rarely have your best interests at heart.
Topics we’ll cover in the following video:
- What is debt settlement?
- Risks of debt settlement programs
- Advantages of an attorney’s help in debt settlement programs
The Problem with Debt Settlement Companies
Most other debt settlement companies are not licensed to practice law in Ohio. The ‘deals’ they coordinate are primarily built on preexisting relationships with the debt collection agencies themselves, not what’s necessarily best for you.
Sometimes a debt payment plan isn’t the right fit, or you could have paid less overall. In the worst-case scenario, their negotiated settlement isn’t valid in Ohio, and you’re left with nothing to show for the fees you likely already paid.
In the end, these companies want to sell you their debt settlement service, and the legal teams they have to make themselves sound more reputable will be more focused on their bottom lines rather than yours. You’re better off using a debt settlement attorney when weighing your options and negotiating debt resolutions.
Not Just Any Debt Attorney
A founding partner at LHA, Jeremiah E. Heck is a leader in consumer law, known for sound financial guidance & fighting large debt companies.
Topics we’ll cover in the following video:
- Why are some debt settlement companies illegal?
- What are your options if you used an illegal debt settlement company?
- Tips to recognize illegal debt settlement companies
Learn more about illegal debt settlement companies.
What Is Debt Settlement?
Essentially, debt settlement is an agreement between you and your creditor when it seems unlikely that you’ll be able to repay the entire amount owed. For example, if you’ve fallen behind on your credit card debt, you may have trouble paying the whole balance. A creditor may accept a partial payment rather than nothing.
A successful settlement will result in you owing less than the original amount. In most cases, you can pay this lower amount as either a lump sum or work out a new payment plan.
Debts Eligible for Settlement
Unsecured debts, like medical bills and credit cards, are best suited for debt settlement. Creditors are more likely to negotiate for a lesser amount for these debts than your mortgage because a bankruptcy filing would likely result in them recovering nothing.
Federal student loans and other debts secured by property are more complicated to reach a settlement agreement, but you can usually include:
- Credit cards
- Medical Bills
- Private Student Loans
- Personal Loans
- Lease Agreements
- Repossession Fees
How Debt Settlement Works
Once you decide debt settlement is the best option, you or a representative lawyer will offer your creditor. For instance, if you owe $30,000, your representative may suggest a lump sum of $10,000 in exchange for legally settling your debt.
If they accept and you make the required payment, your debt will be settled, removing any further obligation.
Keep in mind this debt negotiation needs to be repeated for each creditor. So if you’re past due on several credit cards, you need to reach a settlement agreement with each company you owe. This makes hiring a debt settlement lawyer an attractive option to ensure a smooth process.
Creditors Can Refuse to Settle
Your creditors are not required to negotiate an outstanding balance. But they do have an incentive to participate. Typically, these companies recover more through a debt settlement than hiring a collection agency, filing a lawsuit, or if you file bankruptcy.
Debt Settlement: Benefits & Drawbacks
The main advantage of working out a debt settlement plan is clearing your various debts for less than the total you owe. And despite what unscrupulous debt settlement companies may tell you, debt settlement does come with risks.
Stopping Payments & Higher Fees
Debt settlement usually requires you to stop making payments to your creditors. After all, why would creditors negotiate if they are getting regular payment?
Instead of paying creditors, you’ll save those funds over time (usually in a dedicated escrow account) for a lump-sum payment. Going further into debt and intentionally incurring late fees can seem counterintuitive and often scares people considering debt settlement.
Settlement Can Take Years
The average timeframe to clear all of your debts via settlement is 24 and 36 months. And while settling debt is generally more efficient and convenient than bankruptcy, it is not the immediate financial fix some debt companies claim.
Debt Settlement & Your Credit Score
When you cease regular payments in preparation for debt settlement, your credit score will suffer. Settling debts rather than repaying in full will negatively impact your rating and stay on your credit history for seven years.
This could limit your ability to buy a home or car in that timeframe.
Added Cost for Debt Settlement
Most debt settlement companies charge upfront fees regardless of the outcome or a percentage of your overall debt. This means another considerable expense.
Since debt settlement should save the individual money in the end, you should consider working with a lawyer that works on a contingency fee based on your total savings.
Debt Settlement Tax Liability
Specific debt relief options may result in the IRS counting the amount forgiven as income. If your settlement included a 1099-C form, you’d have to list the amount and pay any required taxes.
In the end, debt settlement is a good option for individuals in short-term financial trouble with the ability to gather funds sufficient to make a reasonable settlement offer to their creditors. It spares them from a bankruptcy filing, but it’s a significant mark against your credit and won’t fix every situation.
Why Use a Debt Settlement Lawyer
Talking to a lawyer before moving forward with debt settlement can help in many ways. For one thing, settlement companies are only focused on settling. This may not always be the best choice.
Get The Best Settlement
A lawyer that’s dedicated to you will assess all your possibilities. Aside from negotiating for the best possible settlement amount that makes sense for you, it often makes more sense to go another route. This could mean bankruptcy, debt consolidation, or another debt management plan.
Representation for Debt Lawsuits
A lawyer licensed to practice in Ohio can also defend you if negotiations break down and your creditor decides to sue you. This is not something a debt company can typically do. If you hired a debt settlement company and a creditor files a lawsuit, you may even be stuck with the fees for their unsuccessful efforts.
Ensure Your Rights are Respected
Several laws protect people from unfair debt collection practices. An attorney can review your unique case and, if violations occur, pursue relief in the form of a lawsuit or other legal action.
Debt settlement companies are limited in what they can do. Section 4710 of the Ohio Revised Code, also known as the Debt Pooling Companies Act, governs what debt settlement companies can do. Using a lawyer makes it easier to ensure your rights are intact and you’re getting the best possible debt solution.