If you’re over your head with debt, debt settlement is one option for finding relief. This involves negotiating credit card debt and other loans to pay less than you owe. However, it can require time and skilled negotiation tactics, so many people choose to work with a debt settlement company.
However, you might wonder if canceling debt settlement contracts is possible. Read on to learn your options.
What Does a Debt Settlement Company Do?
Debt settlement is a way to handle resolving consumer or business debt. If done right and by an experienced professional, the process can help you pay less than the full balance on your debt and find relief quickly. This works a bit differently from a debt management plan, which involves debt consolidation. Debt management plans are often used in conjunction with nonprofit credit counseling.
While you can certainly attempt this on your own, many people find it helpful — and often, better — to hire a professional debt settlement law firm to ensure it’s done right.
Here’s how it generally works: When pursuing debt settlement services, you must first be aware that you’ll likely need to be behind on your monthly payments to resolve the debt. That’s because creditors typically only agree to this type of arrangement if they believe they won’t get anything from you otherwise.
Next, you set aside funds that will be used to pay into the debt settlement program and settle your delinquent debt.
Finally, a debt settlement professional negotiates with lenders to ensure that the matter is resolved in your best interest and within your budget. Ideally, a debt settlement attorney will hold the funds and negotiate the settlement for you.
Remember that this process can negatively affect your credit score in the short term. But the goal is to get rid of your debt so you can focus on getting your finances back on track ASAP. If debt settlement is managed correctly, you might even see your credit score improve in the long run.
Red Flags to Consider
However, when it comes to debt settlement companies, consumers tend to have mixed experiences. A reputable company will be licensed in your state and may be limited by certain state laws. They should talk to you about your situation and how the debt settlement process works in detail.
They should not take money from you before doing any work (commonly, there can be monthly fees before work is done), which may be a red flag. Most importantly, they should also discuss their fee structure and potential outcomes of hiring their services.
Some companies, however, are less transparent about their costs, practices, and potential results. And some companies are really only call centers and outsource much of the work.
According to the Federal Trade Commission (FTC), signs of a shady debt settlement company include:
- Demanding payment upfront before any services have been provided
- Charging excessive fees
- Guaranteeing certain results, which is not possible
- Solicitation (i.e., cold-calling you)
- Promoting new government debt relief programs or loopholes to get you out of debt
- Not explaining the consequences of ceasing contact with creditors
- Signing you up for their services without going over the plan in detail
Keep in mind that a legitimate debt settlement law firm will likely not operate that way. A law firm normally handles all aspects of debt settlement from beginning to end. This is a better process for success.
How to Cancel a Debt Settlement Contract
If you signed up for a debt settlement program but are experiencing any of the challenges mentioned above — or you aren’t happy with the company or terms — know that it is possible to cancel your contract. Here are the steps you should take:
1. Review Your Current Debt Settlement Contract
First, review the contract you signed with the debt settlement company to see the procedures for canceling. You often need to notify them in writing (sometimes, failure to pay voids your contract). You are likely out any fees you’ve paid thus far, but the money you’ve set aside in your escrow or other savings account may be yours to get back. Always ask for an accounting and refund in writing.
2. Notify Your Bank
To avoid having any more fees taken out of your account, you should immediately contact the debt settlement company to cancel the agreement in writing. For example, suppose your plan with the debt settlement company involves automating debit payments from your personal bank account. In that case, you should call the bank to let them know you’ve canceled that arrangement and ask to stop the automatic payments.
3. Hire a Debt Relief Lawyer
You shouldn’t wait to act once you’ve canceled your existing debt settlement contract. It’s important to follow up on your outstanding debts immediately and pursue a solution that works to resolve your debt.
You might feel frustrated and unsure who to trust to help you resolve your debt after a bad experience. Know that a licensed attorney has different ethical obligations to you as a client, which could be a better debt relief source. If you don’t handle the debt ASAP, you could be sued for the funds you owe, especially if you were in another program and the debts were unresolved. And if your creditors get a judgment against you in court, you could have your bank accounts frozen, wages garnished, liens placed against your property, and other dire consequences. Contact a debt help attorney right away if this is happening.
That’s why it’s a good idea to enlist the help of a debt relief lawyer immediately before or after canceling a debt settlement agreement. If you have pending settlements or are still in default on your debt, you can talk to a lawyer about how to proceed. An experienced debt relief lawyer can review your financial situation and discuss your options and provide you with a good strategy to get the debts resolved once and for all. Plus, they can field calls from debt collectors and debt collection law firms and take that pressure off of you.
Tayne Law Group is an award-winning debt relief law firm that has been advising clients on how to handle their debts for more than two decades. We’ve successfully negotiated countless debt settlements and have the knowledge and debt negotiation skills to get you the best deal possible.
Exploring Your Options
Of course, settlement isn’t always the best option for every person, and that’s why an experienced attorney can go over the different options available to you. Not all debt and financial situations are alike; someone who understands different strategies to resolve debt can often make a difference. It might make more financial sense to file for bankruptcy or pursue another debt relief option. Again, our experienced lawyers can help walk you through the best course of action that works for you, your family, and your finances.
We provide a free consultation so you can learn about our services and how we can best help. Get in touch right away by calling us at (866) 890-7337 or filling out our short contact form. All conversations are completely confidential, and we never share your information.
FAQs
Yes, you can back out of a debt settlement contract. However, doing so may have consequences, such as forfeiting any fees you’ve already paid or facing continued collections from your creditors.
To cancel a debt collection contract, review the terms and conditions of your agreement. Typically, there will be a procedure outlined for cancellation. You’ll likely need to provide the debt collection company with written notice specifying your intent to terminate the contract.
If you cancel your debt relief program, you may:
Lose any fees you’ve already paid to the service provider.
Become responsible for repaying your full debt amount, possibly with added interest or fees.
Face continued or intensified collection efforts from your creditors.
Potentially harm your credit score further.
