Why Hiring a Lawyer Might Be a Good Idea
Suppose you need help settling your debts or are unsure whether negotiating settlements is appropriate. In that case, a skilled attorney can provide you with practical legal advice after fully analyzing your situation. Debt settlement attorneys usually have negotiation skills developed over three years of law school, many years of practical experience, and extensive knowledge about debt collections. A lawyer can also represent you if a creditor files a lawsuit. Unfortunately, debt settlement companies can’t do these things.
An attorney will go over all of your options with you. A good attorney will go over all of your options. The attorney can help you figure out if you really should try to settle your debts or whether you should do something else, like file for bankruptcy, for example. On the other hand, a debt settlement company will probably try to convince you to hire it to settle the debts.
An attorney can defend you if you get sued. For example, if a creditor decides to sue you to collect a debt, an attorney can defend you in the suit. Likewise, if a creditor violates the law in its efforts to collect from you, an attorney can provide specific advice and tell you how to proceed in your particular situation.
Beware of Bad Debt Settlement Lawyers
Attorneys must be licensed and are supposed to uphold strict ethical standards. But, unfortunately, not all do. For example, some debt settlement companies employ lawyers to act essentially as fronts (or, in some cases, attorneys might team up with a debt settlement company) to provide the company an appearance of legitimacy. But the lawyers have little or nothing to do with you, your creditors, or the debt settlement process.
How to Avoid Bad Lawyers
It’s generally best to hire a local attorney whom you can meet with face-to-face rather than hiring a firm over the phone or Internet. You should schedule a meeting to speak directly to the attorney. Find out if the attorney will deal directly with the creditors or if a staff member will negotiate. If the company says they’re “attorney backed” or won’t let you meet with or talk to an attorney, that’s a big red flag that the attorney has little to do with the operation.
Here’s another red flag that the “law firm” you’re dealing with is just a debt settlement company: It wants you to pay money for it to negotiate with your creditors but says you’re on your own if you get sued. Debt settlement companies masquerading as law firms are usually unwilling to provide you with legal representation if your creditors sue you.
You Can Settle Your Debts On Your Own
You can arrange a debt settlement yourself. If you’re sure you want to settle your debts rather than filing bankruptcy or some other option—and your creditors aren’t already suing you or causing you problems—you might not need to hire an attorney.
It often makes sense to negotiate your settlement so you can save money and maintain control over the process. Also, your creditors could be reluctant to settle if you hire someone to represent you in the process. After all, if you can afford to hire a debt settlement company or an attorney, why can’t you pay the full debt?
In the end, debt settlement companies, and sometimes even attorneys, often can’t work out a better settlement than if you approach the creditors on your own.
Possible Tax Consequences
No matter who handles the settlement process, settling debt could have tax consequences. The IRS generally considers canceled debt of $600 or more as taxable, and settling debts for less than what’s owed can increase your tax liability depending on your tax bracket and the canceled amount. Consult a tax professional for more information.