Debt Settlement - A Viable Option But Don't Believe the Hype

You've all heard the radio and TV ads promissing immediate debt relief - the right to settle up to 50% of your credit card debts. They say that the banks got a bailout and you should too. Some even say that there is a government bailout or program for debt relief. There IS NO SUCH FEDERAL PROGRAM.

There is a government sanctioned way of eliminating most of one's consumer debts - bankruptcy. That is, if you meet certain income guidelines for Chapter 7 or can defeat the abuse presumption, if you are under the debt cap in Chapter 13, and a host of other factors that require an attorney's advice. In addition, many people do not want to file or cannot file for bankruptcy for a host of reasons, including having already filed in the recent past and finding themselves back in the same situation.

Alternatives to Bankruptcy

For people who cannot file or refuse to file for bankruptcy, the options are limited - they can pay as agreed, they can try to settle with their creditors on their own, they can ignore the problem and hope it goes away, or they can seek an attorney's help to negotiate the debts and represent them when their creditors do sue (and they can and often will). The risks in seeking to pursue debt settlement rather than bankruptcy are significant and NO ONE should every try to do so without seeking an attorney's advice and analysis as to what options and the risks are present.

The question is, then, should the client seek to go to one of the ever-present debt settlement companies that are constantly advertising, or should they seek out a law firm to help if that is the way they want to go.  That is entirely up to the client, however, consider the following:

State Laws Regarding Debt Settlement

Many states have statutes requiring debt settlement companies to be licensed in order to do business in those states. The states in which I practice, New York and New Jersey, treat these requirements differently.  New Jersey, while requiring a license to be a debt adjuster, specifically excludes attorneys from the definitions of Debt Adjusters or debt settlement companies required to be licensed, so long as the attorney is not "principally engaged" in debt adjustment (NJSA 17:16G-1(2); 

New York does not appear to have any licensing requirement for this type of work.  No matter what, however, attorneys are subject to the Rules of Professional Conduct for each state in which they practice and are subject to the supervision and censure of the Courts.  A client, therefore, who engages an attorney to assist in debt settlement, may at least be assured of a reasonable assessment of the risks and dangers of that kind of strategy.  A non-attorney may not provide this dispassionate advice, and, indeed, may be engaging in the unauthorized practice of law if they do so.  The risks, however, are always there and a client should be wary of traps.

In any case, the one thing that no one should ever do is ignore the problem.  It will not go away on its own.

This information is presented for information purposes only and no attorney-client relationship is formed by the presentation hereof.