What Is a Debt Settlement Attorney?

A debt settlement attorney specializes in negotiating with creditors to reduce the amount of debt the individual must repay. They will contact each one of the creditors and each collection agency to stop the late fees, penalties, and premiums building up on all accounts. The debt settlement attorney will establish agreements so the credit card companies and collection agencies will contact the attorney instead of the consumer. It is also the responsibility of the debt settlement attorney to obtain the consumers credit report and work to remove any misleading, unsubstantiated, or incorrect items. This is a very important service that should be utilized by the consumer to restore credit ratings and create a plan for future financial management. Using a debt settlement attorney is vastly different from credit counseling. It can be risky to your credit, but if your credit is already destroyed you may have little to lose and more to gain by settling outstanding debt. Debt settlement is much more aggressive than credit counseling, and it can get you out of debt in half the time of credit counseling. Many states have laws regulating debt negotiation companies. To see if your state permits debt settlement, contact your state Attorney General.

If you ignore the debt long enough, you stand a good chance of never hearing from the creditor again. Seven years after the debt is written off, the negative listing disappears from your report altogether. But if you pay the debt sometime before the end of that period, the seven year cycle starts all over again, not exactly what one would call an incentive. It’s like getting time added to your sentence for good behavior.

Fortunately, creditors make their money by collecting the debts, not by reporting negative credit information. Creditors recognize this catch-22, and are therefore often willing to delete the negative listing upon settlement. If you are going to settle with a creditor, be sure to have your debt settlement attorney negotiate removal of the listing from your report.

Keep in mind that using a debt settlement attorney usually applies to unsecured debts like credit cards, medical bills and department store cards. Things like mortgages, student loans, alimony and child support fall into the category of secured debts and there is usually not much that a debt settlement attorney can do with these types of debts.

In debt mediation the consumer confers his mediator with limited power of attorney to work out lump sum settlements on specified debts at reduced amounts. The consumer ceases their credit card payments and instead pays the mediator an agreed amount monthly to fund settlements.

Debt mediation addresses the amount owed (principal) as well as interest and fees, sometimes reducing the total obligation to as much as 40% of the original debt. Creditors prefer such settlements to the risk of bankruptcy and report such settlements “paid as agreed” on the consumer’s credit record. Your credit could, however, be affected in a negative manner. Some creditors will not mark their debt paid as agreed, and it will remain on your credit report for a number of years. Consumers still opt for debt settlement because they find it preferable to bankruptcy. Usually, the way it is reported on your credit record involves the words “Settled” or “Settled as Agreed” or “Paid as Agreed”. However, all the late payments may remain on your credit report until the statute of limitations runs out. At that point, credit repair might help to remove the negative marks if the reporting creditor fails to provide documented proof to the reporting agency

Gust A. Lenglet has been an accountant and financial advisor for many years. He is President and CEO of Crown Financial Concepts, Ltd. and offers Budgeting software to create a household budget. He is also an accomplished author in the tax, legal, and education fields, as well as debt consolidation and relief.

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