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Do you have a large amount of debt and struggle to pay it? It might be helpful first to get the advice of a nonprofit consumer credit counselor to help you create a budget and provide financial advice.
If you’re still struggling to pay off debt, you may want to consult a debt settlement attorney who can consolidate your debt, lower it, or put you on a payment plan.
There are Four Main Fee Structures
A debt settlement attorney will negotiate with your creditors. For this, there are a few different fee structures. To deal with your creditors, an attorney might charge:
- One flat fee per debt: This can range from $500 to negotiate a simple case to up to $5,000 for a complex negotiation.
- An hourly fee: The law firm could require a retainer (a lump sum prepayment) to start negotiations. Expect a debt settlement attorney to charge somewhere between $150 to $350 per hour. An hourly rate will depend on several factors, including where you live, how many debts — and types of debts — you need to settle.
- A fee based on a percentage of your total debt: This will be a fixed amount based on how much you owe.
- A fee based on a percentage of what a settlement saves you: This will be a fixed amount based on the amount of money you save.
Circumstances That Could Increase Attorneys’ Fees
An attorney might charge a higher fee if:
- There is a judgment against you
- A lender, creditor, or collection agency has filed a collection lawsuit, and you need to file a counterclaim
- You want to negotiate terms of secured debts like a car loan or mortgage
- You need to file for bankruptcy
Debt Settlement Attorneys: What Do They Do?
In many cases, debt settlement lawyers help clients settle with lenders or credit card companies for significantly less than they owe. Suppose you are struggling with unsecured debt like credit card debt, private student loans, payday loans, or medical bills. In that case, a debt settlement lawyer will negotiate with your lenders and reach agreements for you to pay smaller amounts.
- Offer legal advice: They will go over all of your options with you and will defend you if you get sued
- Provide attorney-client privilege: This prohibits your attorney from disclosing any confidential conversations that you have with your lawyers
- Handle debt negotiation on clients’ behalf. Sometimes this involves reducing the amount of debt, and sometimes the negotiation process involves a lower interest rate
- Know the debt collection laws and consumer protections
- Defend clients against illegal or questionable debt collection practices
- Defend you in court if a debt collector or creditor sues you
- Deal with any default judgments that may be in place
- Walk you through all of your options
- Set up a payment plan
- Recommend debt relief alternatives as necessary, like filing for bankruptcy
Debt settlement lawyers are held to higher ethical standards than debt settlement companies but will cost more unless you have a reasonably straightforward case.
How do Debt Settlement Attorneys and Bankruptcy Attorneys Differ?
There are several types of bankruptcy, and a bankruptcy attorney will know the best options for your financial situation. A debt settlement lawyer focuses on reducing your debts and is skilled in negotiations and consumer protections. Bankruptcy attorneys specialize in bankruptcies that may get you out of debt altogether but will decimate your credit score and stay on your credit report for seven to 10 years. Though there’s no way to file bankruptcy for free, there are some strategies to minimize the cost.
The two most common types of bankruptcies are Chapter 7 and Chapter 13. Chapter 7 is known as “straight liquidation” bankruptcy. There is no repayment plan. The bankruptcy trustee collects and sells the debtor’s nonexempt assets and uses the proceeds to pay off creditors. A Chapter 7 bankruptcy can erase many types of consumer debt, including credit card debt and medical bills.
A Chapter 13 bankruptcy is known as a wage-earners plan. Chapter 13 is for someone with a regular income who repays all or part of their debt through a repayment or installment plan over three to five years, depending on how much steady income they make. In Chapter 13 bankruptcy, you must devote your disposable income to your repayment plan. Chapter 13 is used by individuals, including those self-employed.
Is Hiring a Debt Settlement Lawyer Worth It?
It depends on the extent of your debts, your financial situation, how complicated your case is, and whether or not you’re capable of trying DIY debt settlement.
If you aren’t comfortable negotiating on your own, there are several other options:
- DIY debt settlement: For simple cases, you can call the creditors on your own to negotiate a debt settlement deal, and that’s free. However, you need to be able to negotiate, which takes up some of your time.
- Debt settlement companies: These for-profit companies will negotiate on your behalf whether you need help with payday loans or credit card debt. Most debt settlement companies charge 15% to 25% of your total debt when you enroll in the program. There are a few downsides to using a debt settlement company. First, your debt will continue to grow due to late charges and can take two to four years to complete the program, and your accounts will continue to accumulate interest and penalties. Second, your creditors may not settle if they know you are working with a debt settlement company and instead may file a suit against you.
- Credit counseling: You could also consult a credit counseling agency, where a licensed counselor will set up a Debt Management Plan on your behalf and make a monthly payment to the credit counseling agency. Though most of these agencies are nonprofit, there is a small monthly fee to administer a DMP.
Many debt settlement law firms and bankruptcy attorneys offer a free initial consultation, so there’s no harm in setting up a meeting to discuss your case and associated costs. Then choose which works best for you.
Debt settlement has several pros and cons. To learn more about them, check out this video:
The Bottom Line
Before hiring an expensive attorney, try other options and research their viability for your specific situation. If you decide to hire a debt settlement attorney, your attorney will know the best strategy to minimize your legal risk and risks to other things like your credit score.
A skilled attorney can provide you with practical legal advice after analyzing your situation, and debt settlement attorneys usually have negotiation skills developed over years of law school, many years of practical experience, and extensive knowledge about debt collections.
Chapter 13 bankruptcy plan involves repayment. The monthly payment is based on what you can afford to pay. Creditors are free to object to the amount of money they get under a Chapter 13 plan, but once the bankruptcy court approves the project, the creditors are bound by the program.
A Chapter 13 bankruptcy discharge eliminates debt that is not repaid after completing the repayment plan. Since creditors get some money, filers aren’t required to surrender any nonexempt property. In a critical difference from Chapter 7, Chapter 13 allows you to reduce the interest rate on your car loan and, in some cases, even the balance you owe.
Chapter 13 is reserved for people with stable incomes with specific debt limits who are appointed a trustee that will handle distributing the monies to the creditors over a three-to-five-year period. Filers can generally retain their home and automobile.
There are many ways to find a reliable lawyer. One of the best is a recommendation from a trusted friend, relative, or business associate. However, be aware that each legal case is different and that a lawyer suitable for someone else may not suit you or your legal problem.
Search the web, and do your due diligence for reviews. It is best to hire a local attorney to speak directly with them, and where you can meet face to face and find out if the attorney is the one who will directly deal with the creditors or if the staff will be the one negotiating.
Visit The American Bar Association for each state’s searchable bankruptcy lawyer database.
You may be tempted to ignore the calls if you can’t afford to pay the debt collector. Don’t do that. If you ignore a debt collector, chances are they will file a collections lawsuit against you in court. If they win through a default judgment, they can garnish your wages, take money out of your bank account and seize personal property.
A debtor’s examination is a particular proceeding under oath about your finances, where creditors look to collect from you via wage garnishment or bank levy. Debt collectors may threaten you with jail time, but you cannot go to jail for nonpayment of a debt. There are a few exceptions, like violating a court order, not paying income taxes, or if you don’t appear for a debtor’s examination.