Can You Face Legal Action While Working with a Debt Settlement Agency?

What to do if you are sued

Well, can You Face Legal Action While Working with a Debt Settlement Agency?

The short answer is Yes, you can still face legal action even when working with a debt settlement or consolidation agency.

Debt settlement agencies, such as National Debt Relief, Accredited Debt Relief, New Era Debt Solutions, CuraDebt, or Freedom Debt Relief, aim to help you manage your debt but often lack the legal capability to prevent lawsuits. These agencies typically do not have lawyers on staff and cannot offer legal defense in court. Consequently, creditors may still pursue legal action against you, especially if they act faster than the settlement agency.

How Do Debt Settlement Agencies Operate?

Debt settlement involves halting payments to creditors and redirecting those funds to a settlement agency each month. The agency then negotiates with each creditor or collector to pay a reduced lump sum, often significantly less than the total debt owed.

Pitfalls of Using a Debt Settlement Company

Credit Score Impact: Stopping payments to creditors can significantly damage your credit score, as missed payments are reported to credit bureaus.
No Guarantee of Success: There is no assurance that creditors will agree to the settlement terms proposed by the agency, leaving you with unresolved debt.
Fees and Costs: Debt settlement companies often charge substantial fees, sometimes as a percentage of the debt enrolled or the amount saved through settlement.
Tax Consequences: Settled debt may be considered taxable income by the IRS, potentially leading to unexpected tax liabilities.
Delayed Resolution: The process of saving enough funds to negotiate a settlement can be lengthy, during which time creditors may become impatient and initiate lawsuits.
Potential for Increased Debt: If settlements are not reached and lawsuits result in judgments, additional fees and interest could further increase your debt.

Why Does Lawsuit Risk Persist During Debt Settlement?

Even with a debt settlement plan, creditors often sell debts to collectors like Portfolio Recovery Associates or LVNV Funding, who are more interested in quick returns than maintaining consumer relationships. Lawsuits compel debtors to prioritize payments to avoid legal consequences, which accelerates the return for collectors.

Saving enough to settle a credit card debt takes time. For instance, if you owe $5,000, paying $500 per month to a debt settlement agency would take five months to save enough for a 50% settlement. During this time, other creditors might become impatient and initiate lawsuits.

Conclusion

Even with a debt settlement agency, legal action is still possible. Understanding how debt settlement works, the pitfalls involved, and the persistent risk of lawsuits can help you better manage your financial situation and prepare for potential legal challenges.

Consultation with an Atlanta Debt Defense Attorney

If you are facing a collection lawsuit in Georgia, knowing your legal rights is crucial. The experienced debt defense lawyer at Diwan Law is available for consultations to discuss your case, answer your legal questions, review the claims against you, and determine the best strategy for moving forward. Working with us, we can guide you through your legal options, including preparing responses, validating claims, gathering evidence, negotiating settlements, and providing courtroom defense.