Should I Hire an Attorney for Debt Settlement?

Debt settlement can be a scary prospect. If you’re thinking about settling debt, it’s natural to want professional help, since you probably have questions about how the process works, what amount you can offer creditors and how to protect yourself.

The truth is you usually don’t need to pay any person or company to help you with debt settlement. If you’re facing legal action from a debt collector, however, it may be helpful to consult with an attorney. Just keep in mind that hiring a debt settlement company is not a good substitute for working with a lawyer, since these companies often mislead consumers about having attorneys on staff. So instead of trusting their claims, it’s better to seek legal advice on your own from a legitimate source.

Understanding Debt Settlement

Debt settlement involves negotiating with creditors or debt collectors to pay less than you owe on your debt. You can settle debt in a few different ways:

• Contact the creditor to negotiate directly.
• Hire a for-profit debt settlement company or an attorney to negotiate on your behalf.
• Work with a nonprofit credit counseling agency to set up a debt settlement plan.

Each of these options has a very different list of pros and cons that comes with it. For example, hiring a debt settlement company gives you a hands-off approach and lets you send one consolidated monthly payment to your creditors.

What’s the downside? According to the National Consumer Law Center, “these services often cheat consumers with high fees and rarely deliver on their promises.” They’re also known for falsely claiming they have layers and law firms negotiating on your behalf.

Settling the debt directly involves a lot less risk, but you may want to consult with a debt collection defense or consumer law attorney to make sure you understand your rights and determine that you’re taking the best approach.

When to Consider Hiring an Attorney

Hiring a lawyer to deal with debt settlement isn’t usually necessary. That’s especially true if your main concern is staving off predatory debt collectors, since there are a lot of laws in place to protect you already.

For example, if a debt collector pursues you for a debt that doesn’t belong to you, you have the right to request verification of the debt and dispute their claim.

You can also settle debt with creditors on your own, without spending money, so you don’t need to hire an attorney to negotiate on your behalf. Plus, some attorneys who offer debt settlement services aren’t always trustworthy.

But in some circumstances, you may want to seek professional advice to gain clarity about your rights, particularly if you’ve received court papers informing you that you’re going to be sued by a debt collector. In that case, an attorney familiar with consumer law or debt collection issues can help you understand if you really need to pay and tell you how to go about the process.

Benefits of Hiring an Attorney for Debt Settlement

If you’re facing a lawsuit, you can negotiate directly with the creditor to try and avoid court. But consulting with an attorney could help ensure a better outcome. Here’s some of the useful information a qualified attorney can advise you on:

• Statute of limitations: The statute of limitations is the timeframe in which a creditor or debt collector can legally attempt to collect unpaid debt from you. A lawyer can help you determine if the timeline has already passed, based on the type of debt and your past payments.
• Exemptions: A lawyer can help you determine if your circumstances make you legally exempt from paying certain debt. For example, if federal benefits are your sole source of income or if you already have a wage garnishment that takes 25% of your wages, you may be exempt from certain debt collection efforts.
• State protections: Consumer protection laws vary by state, so a lawyer can inform you how your state laws impact your options for dealing with debt collectors.

Another benefit of hiring an attorney is that, once you provide the lawyer’s contact information to your creditor or debt collector, they have to stop contacting you about the accounts.

Considerations Before Hiring an Attorney

If you’re looking for an attorney to help with debt settlement issues, proceed with caution. Before you agree to work with anyone, make sure they check all of these boxes:

• They do not work for a debt settlement company.
• You can meet with them face-to-face or via video chat (as opposed to hiring a so-called “attorney-backed” company).
• They charge on contingency, which means you pay based on the outcome of your case as opposed to paying an up-front fee.
• You can confirm they’re licensed and in good standing with their state bar organization.
• They have verifiable experience with consumer law or debt collection defense.

Another thing to keep in mind is that debt settlement is primarily for unsecured debt, meaning debt that is not backed by collateral. The most common types of unsecured debt are credit cards and personal loans.

On top of that, some types of debt can’t be negotiated by a third party at all, even if it is an attorney. These debts generally include court-ordered payments such as child support and alimony, federal debt, car loans and mortgages.

For federal debt, including student loans and tax debt, the only way to change your payment arrangement is by going directly through the federal agency and applying for one of their available programs. For secured debt, you can contact the lender to see what repayment options they have.

Finally, you’ll want to consider whether hiring an attorney will really save you money. Not only will you have to pay the lawyer’s fees, but you may also have to pay income taxes on debt that’s forgiven as a result of your settlement negotiations. When you add up those costs, settlement could end up being too expensive.

How to Choose the Right Attorney

You can search for a lawyer online but it’s a risky way to go, since your search results are likely to be full of debt settlement companies marketing themselves as legal help.

Instead of going that route, The Consumer Financial Protection Bureau (CFPB) recommends using these sites or services to find a legitimate attorney:

• American Bar Association
• State-based legal aid
• The National Consumer Law Center
• JAG offices (for service members)

Choosing Your Path in Debt Settlement

Before you hire a person or a company to help you with debt settlement, check to see if you can resolve the issue yourself. The CFPB website is a great place to find information about your rights and tips on how to negotiate with creditors.

Another way to get affordable, professional help is by talking to a certified credit counselor at a nonprofit credit counseling agency. These counselors can examine the details of your debt to see if you really need to pay anything, offer you tips and assistance for negotiating settlements and walk you through other solutions, like nonprofit debt settlement or a debt management plan.