Is Debt Settlement Legal?

"Is debt settlement legal?", is often one of the first questions people ask when they hear just how much they can save on their debts by seeking a settlement with their creditors. And the answer is, absolutely!

In fact, many lawyers/attorneys offer debt settlement as part of their practice. In most cases they offer this service to clients who are considering filing bankruptcy, but would be better served by the debt settlement process.

Why Is Debt Settlement Legal?

In order to answer this question, it is important to understand what debt settlement really is.

Debt settlement is simply the process of negotiating an agreeable amount to be paid to a creditor today, in return for dismissing the debt. As long a both sides agree upon, and sign off on the amount, it is all legal.

In many instances the agreed upon settlement amount can be as low as 30% of the total debt. And I believe that it is likely this apparent "unfairness" to the creditor that prompts the questions about the legality of debt settlement. But again, these are amounts that are agreed upon by both the debtor and the creditor.

Is Debt Settlement Legal If You Don't Use A Lawyer?

As I mentioned earlier, many lawyers and attorneys offer debt settlement services as part of their practice. But, it is certainly not necessary or "against the law" to settle your own debts. Nor is there anything wrong with hiring a debt settlement company (that is not run by lawyers) to negotiate on your behalf. Having said that, there are some advantages to having lawyer handle your debts.

Here are two reasons.

First, debt settlement may not be your best option. In fact, many people who consider debt settlement, may be better off choosing to file bankruptcy. Because of this, a debt lawyer is often the best person to help guide you in making a decision. They can thoroughly assess your financial situation and point out the pros and cons of each option. From there they will recommend either the debt settlement route, or bankruptcy (Chapter 7 or Chapter 13).

Second, if you do choose to negotiate your debts rather than file bankruptcy, having a lawyer act on your behalf can help you avoid many of the legal pitfalls that can be involved in the process. For example, there is a good chance that you may be sued by your creditors during the debt negotiation process. And if you already have a lawyer handling your debt file, it will save you having to seek outside help.

Your Next Step...

Is debt settlement legal? Sure.

Is it the right choice for you and your financial situation? That's a tough question.

The best advice I can give you is to seek some professional help. At the very least speak to a bankruptcy attorney prior to deciding on debt settlement. And an even better route would be to get a free consultation from a credit counselor who can then advise you as to your best options (which may or may not include debt settlement and bankruptcy). As an added bonus, when you consult with a credit counselor they will help you thoroughly assess you financial situation, offer money management and credit education, and help you prepare a personal or family budget.