When your debts stack up, hiring a debt settlement lawyer might be the solution you are looking for, especially if you don't want to file, or don't qualify, for bankruptcy. Finding a good debt settlement attorney can be tricky, however. While many debt relief lawyers work hard on your behalf, others promise more than they can realistically deliver. Paying attention to the telltale signs discussed in this article can help you avoid wasting your time and money on a sleazy debt settlement lawyer.
What a Debt Settlement Lawyer Can Do For You
Debt settlement is an informal negotiation process in which you offer to pay your creditor something less than what you owe. Your creditor won’t reduce your debt without reason, however, and the tactics that work are predictable. Here are a few:
- offering to pay a lump sum, especially at the end of the month when the creditor is most sensitive to meeting its monthly collection goals
- offering to pay more than the creditor would receive under a Chapter 13 payment plan, and
- offering to pay more than the creditor would get if it sued you in court.
What you should notice is that the formula is the same. All of these options require the attorney to convince the creditor that it will be better off -- in other words, get more money -- by settling now rather than later.
You Can Settle Your Debt Yourself
Negotiating your debts yourself allows you to avoid the additional cost of paying an attorney. One good way to find out your negotiating comfort level is by reading articles on debt negotiation techniques. If you aren’t comfortable negotiating and want to hire a legal representative, the information below should help you make an informed decision. (Learn about the pros and cons of settling debts yourself.)
What a Bad Debt Settlement Lawyer May Tell You
People long on debt are usually short on money, which is why most lawyer's debt settlement businesses depend on the ability to churn through many cases. Large caseloads, however, often require the lawyer to make big promises, and sometimes the promises are not realistic. Here are some promises and warning signs to watch for:
The attorney promises to settle your debts quickly. Like any other negotiation, debt negotiation takes time. This is partly because most creditors won’t start negotiating in earnest unless a significant amount of time passes since your last payment. Once negotiations do start, offers and counter-offers go back and forth, often over a span of months, until one side finally wears down. Since each debt requires individual negotiation, the process takes even longer if you have multiple debts.
The lawyer suggests he or she can do something that you can't do yourself. It doesn’t matter whether your debt problem involves credit card debt, tax debt, or a home foreclosure, many people want to believe that a “magic” formula exists that will resolve a particular problem. Unscrupulous settlement organizations not only know this, they use this knowledge to take financial advantage of desperate, vulnerable people. The truth is that you can do anything that a debt settlement attorney can do, and therefore, any attorney suggesting otherwise is suspect. Simply put, it only makes sense to hire a debt settlement organization when you are not personally comfortable negotiating down the balance of the debt yourself.
The negotiator claims he or she can settle all of your debts. As long as the credit contract you signed is valid, your creditor is under no obligation to reduce the amount you owe. Someone who is not a party to the contract, such as a debt settlement attorney, does not have the legal ability to change the payment terms. Because of this, a debt settlement lawyer cannot guarantee that it can reduce all of your credit balances -- or any of them, for that matter.
The lawyer bills you a fixed amount each month. Debt settlement lawyers are in it to make money. If your lawyer isn’t billing you for the actual time spent negotiating your case and instead bills you a fixed rate each month, it's because the lawyer makes more money that way. Charging you a flat rate each month also creates an incentive to continue negotiations rather than settle. In fact, don’t be surprised if negotiations remain ongoing until you finally get fed up and fire your lawyer. (Learn more about how much debt settlement lawyers charge.)
The lawyer tells you that legal professionals have more influence than you do. Some lawyers might tell you that creditors are afraid of attorneys. The truth is, however, that unless you have a legitimate issue, they aren’t. A creditor knows its rights and the only thing driving it is the bottom-line. This means a creditor’s only fear is showing a loss on its balance sheet. No matter what anyone else may tell you, appealing to the bottom-line is the only thing that works.
Signs of a Good Debt Settlement Attorney
A good debt settlement lawyer will do the following before agreeing to accept your case:
- only promise to work diligently to reduce your debt
- explain the settlement process in clear, easy-to-understand language
- only charge you for the actual work done on your case
- explain that the entire debt might be dischargeable in bankruptcy
- explain that once your debt is reduced, the amount forgiven will likely be taxed as income, and
- explain that taxes are rarely dischargeable in bankruptcy.
If you have any questions about the qualifications, ethics, or overall reputation of a legal professional, you can find out more about the particular attorney by consulting the licensing agency in your state, as well as consumer complaint organizations such as the Better Business Bureau. (Learn where to shop for a good debt relief lawyer.)