Unfortunately, you can be sued even if you have a debt settlement or debt
consolidation agency working for you.
Debt settlement or debt consolidation agencies are not usually lawyers. They promise
to fix debt problems, but often a debt settlement or debt consolidation agency cannot
settle your collection matter quickly enough to stop a lawsuit against you. This means
that even though you may have hired a debt settlement or debt consolidation agency to
stop debts from getting out of control, a debt collector can still sue you. Once the debt
collector files a collection lawsuit against you, then the debt consolidation agency will
usually not defend you in court. This is because only lawyers can defend people in
court and most of the employees at debt settlement agencies are not lawyers. They
are also usually nationwide companies, not local to the Sacramento area and so they
can’t appear in California courts.
How Does Debt Settlement Work?
Debt settlement works by having the borrower stop paying all of his or her debts and
instead pay some money to a debt settlement agency every month. The debt
settlement agency then tries to make a deal with each creditor or debt collector to
accept as a lump sum less than the whole balance of the debt. Debt collectors usually
buy debts for a small percentage of the face value of it, so if they get paid even 50% of
the debt owing, then they make a profit. Please note, the original creditor usually gets
paid nothing additional when a debt collector gets paid. There also may be income tax
implications for the forgiveness of debt.
Why Is it So Common to Get Sued While Doing Debt Settlement?
Shouldn’t the creditors see that you are trying to work with them and be patient to get
the money? Wouldn’t that be better than starting a lawsuit? It may feel that way, but in
reality the debts are usually no longer with the original lender. The original creditor, for
example, Chase Bank or Discover card, will have sold your account to a debt collector
like Portfolio Recovery Associates or LVNV funding. These debt collectors don’t have
to worry about their reputation with consumers and just want to get a return on
investment as soon as possible. If these debt collectors start a lawsuit against you,
they know that you will try to pay them before paying anyone else.
It takes a long time to build up the money to settle a credit card debt. Most people pay
$400 to $600 per month to a debt settlement agency, so it takes a long time for the debt
settlement agency to have enough money to propose a lump sum settlement on a
substantial credit card debt. For example, if you have a $5,000 unpaid credit card, it will
take 5 months at $500/month to have enough to offer a 50% settlement. 5 months for
just one debt? That is a very long time. During that time some of the other debt
collectors will get impatient and will start lawsuits.
What Can I Do to Stop a Lawsuit?
You have three options:
1. You can prove that you do not owe the debt. This is unlikely to work because
you need proof that you already paid it or that they are suing the wrong person.
2. You can pay off the debt. Most people who have enough money to pay their
debts, do in fact pay the debts. The creditors sue so that they can garnish your
wages or place a judgment lien on your home.
3. The cheapest and easiest way to stop a collections lawsuit is almost always by
filing bankruptcy. I specialize in chapter 7 and chapter 13 bankruptcy, both of
which stop lawsuits immediately upon filing.
