Upfront Debt Settlement Fees
If you're considering the bankruptcy alternative debt settlement as a step toward eliminating your personal debt, you're probably interested in knowing what you can expect from debt settlement firms.
To speak with a lawyer about what constitutes legal upfront debt settlement fees, or to discuss debt relief alternatives, please fill out this form now. You can arrange a free, no-obligation consultation with an attorney and learn about your debt relief options
Who Can Charge Upfront Debt Settlement Fees?
In a law that took effect in October, 2010, the Federal Trade Commission (FTC) outlined new rules for upfront debt settlement fees designed to protect consumers and allow them to potentially hang on to more of their money.
These rules apply to debt settlement firms that communicate with consumers via the telephone.
- No fees until debt is altered: Telemarketing firms cannot charge fees until a customer's debt is in some way settled, reduced, renegotiated or otherwise changed thanks to the debt settler’s negotiations with the creditor.
- No fees without a written, signed agreement: Telemarketing debt settlers must also draft a written agreement outlining the proposed terms of the repayment or settlement plan and the customer must sign this document before any fees can be charged.
- No fees until one payment is made: The final criterion that telemarketing debt settlers must meet in order to collect fees from customers is that they must have collected at least one payment from a customer first.
In other words, if the debt settlement company you work with does business over the phone (whether soliciting customers via phone calls or accepting customer phone calls in response to an advertised phone number), that company cannot collect upfront debt settlement fees. It must meet the above criteria before charging any fees.
Debt Settlement as a Bankruptcy Alternative
Even though these rules offer greater protections for consumers interested in settling their debts, they don’t mean that working with a debt settlement firm will guarantee positive results. If you're thinking about debt settlement, consider these warnings:
- New rules apply only to telemarketers: Some firms have switched to Internet-based contact or otherwise chosen to avoid telephone contact to get around abiding by the new rules and so may still charge upfront fees.
- There is an attorney exemption: Because it is customary for lawyers to charge upfront fees, debt settlers who work with lawyers are permitted to charge fees upfront; however, some companies may try to take advantage of this rule by establishing only a very tenuous connection with a lawyer.
- Enforcement powers are limited: There may still be some unscrupulous firms out there charging illegal upfront fees. To make sure you're working with a trustworthy debt settler, check the company out online before making any payments.
- There is no federal standardization: Unlike personal bankruptcy protection, debt settlement is not regulated at the federal level, and so it's difficult to know what to expect from any given debt settlement experience.
Discuss Your Alternatives With an Attorney
If you're interested in learning more about debt settlement as a bankruptcy alternative or better understanding how the law protects you from illegal behavior on the part of debt settlers, take advantage of this opportunity to speak with a bankruptcy lawyer near you in a free initial consultation.