Millions of Americans have debt that is spiraling out of control. They have to deal with the daily struggle of deciding whether to pay bills, buy food, pay their medical debt, or get their car fixed. No one should face these decisions, especially if you have had an accident, lost a job, got a divorce, or gone through an unexpected crisis.
You may not actually need an attorney. It’s possible that you simply need a debt settlement company to intervene with your creditors. However, there are a few times when your problems require legal intervention.
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Disclaimer: The information included is strictly for informational purposes. If you suspect that you need an attorney, please schedule a consultation or contact your local Legal Aid group.
7 signs you may need to hire a debt relief lawyer
If you’re considering the options, you probably already have an overwhelming amount of debt. Here are seven reasons an attorney might be a better choice than a debt settlement company.
- You’ve already been sued by a debt collector or creditor and have received a court summons
- Your wages have already been garnished
- You missed a court appearance and there’s a judgment against you
- You are facing a complicated legal situation, like trying to settle debt while also getting divorced
- You’re seriously considering bankruptcy
- You want to choose your own attorney rather than work with one that is partnered with a debt settlement company
- You have less than $10,000 in debt ($10K is usually the minimum required by a for-profit debt settlement company)
Any one of these indicates that you need legal help that could go beyond debt settlement.
READ MORE: Are you drowning in debt? Here’s how to save yourself
Lawyer vs. debt settlement company
There are a lot of similarities between debt settlement companies and debt settlement attorneys, but most debt settlement companies are more of a one-stop shop, providing access to everything you need to repair your financial situation. This may include access to a debt settlement attorney, saving you the inconvenience of hiring (and paying) a separate attorney. It’s also important to remember that some debt settlement companies can only work in certain states, and not all companies will include legal representation. You need to ask before you choose a company.
Pro tip: If you read many debt settlement law firms’ descriptions of why you should hire them, the duties are basically the same as those performed by a debt settlement company, but the lawyers likely charge a higher fee. If you are simply looking for someone to negotiate with your creditors and get your financial situation back on track, a legitimate debt settlement company will have the experience you need and, in some cases, may already have working relationships with particular creditors. In addition, the best debt settlement companies will include access to a lawyer if legal problems arise, so you’re still protected.
A legitimate debt settlement company will also regularly work with creditors and likely will know during the initial consultation whether they’re a good fit for your financial situation. They know which creditors refuse to settle and which states have particularly restrictive state laws. The debt settlement industry is heavily regulated, and the American Fair Credit Council provides a valuable list of facts about the industry.
If you still aren’t sure whether you need a lawyer, here are the key similarities and differences:
Key similarities
- All of your options will be reviewed, including debt settlement
- Knowing you’ll have legal representation if you get sued offers peace of mind
- Both law firms and debt settlement companies customarily offer a free initial consultation to help you decide whether the program will work for you
- Your credit score will probably take a hit whether you choose an attorney or a debt settlement company
- They possess a wealth of professional knowledge, which can help you understand complicated creditor/debtor laws and legal contracts
- You may get out of debt without having to repay the full amount
- Both will advocate on your behalf, which will help level the playing field when dealing with experienced creditors and debt collection agencies
- Debt settlement can protect your real estate investments and can help ward off foreclosure or repossession
- Both can help to alleviate stress during the debt relief process
Key differences
- Flexibility: A debt settlement company can also see whether you may be eligible for debt consolidation or other debt relief tactics, while an attorney will focus primarily on legal options
- Cost: The cost of working with a debt settlement lawyer can vary but will typically be around $125-$350 per hour. An attorney might charge base fees on the amount of debt you have. Debt settlement companies will charge a fixed amount, typically between 15% to 27% of the total debt settled
- Attention: Because many lawyers bill by the hour and deal with many legal issues and court appearances, you may compete for attention with many other clients. A debt settlement company has one goal: settling clients’ debts.
READ MORE: How does debt consolidation work?
Pro tip: Whether you work with an attorney or a debt settlement company, there is always the risk that your creditor may refuse to settle. Creditors are under no legal obligation to negotiate. Look for an attorney who does not charge upfront fees and only takes payment if your case is won or settled.
When to use a debt settlement attorney
A debt settlement attorney represents clients who want to remove their debts or at least pare them down and settle them so they either go away immediately or they’re paid off over time. Like debt settlement companies, they negotiate with creditors to find solutions to existing debts. The process helps people and companies avoid bankruptcy and other types of litigation. However, it’s worth noting that many debt settlement companies will also provide legal representation if it becomes necessary. The only instances where you need an attorney over a debt settlement company are cases that have a particular legal complication, such as if you’ve already been served with a lawsuit or you are trying to settle debts while divorcing.
Pro tip: While federal debt collection efforts are already highly regulated, state laws make the issue even more complicated. Each state has the right to regulate debt collection and settlement practices. Some state laws are so strict that it becomes almost impossible for debt settlement companies to operate. If you live in one of these states, you must hire a debt settlement attorney. Talk with a debt settlement company to learn more about your options.
What does a debt settlement attorney do?
Many attorneys offer free consultations and help you determine the best settlement process for your financial situation. Debt settlement attorneys do the same thing debt settlement companies do, but instead of working with a company, you work with an individual or a law firm. They negotiate for lower payment plans and interest rates, so you are not on the hook for the entire debt you owe. Debt settlement attorneys will guide you through the settlement process and represent you in court if you are sued.
What will a debt relief lawyer cost?
If you decide to use an attorney for debt settlement, you may be responsible for the initial fees or retainer for the lawyer to handle your case. There are generally four payment structures: one flat fee per debt, an hourly fee, a fee based on the percentage of total debt, or a fee based on what a settlement saves you.
How to make a debt settlement with an attorney
The steps are almost exactly the same ones a debt settlement company would use.
- The attorney will meet with you to discuss your debt situation.
- After evaluating your situation, they will let you know the best debt relief options. Options could range from some form of a debt settlement plan through debt negotiation with your lenders up to considering bankruptcy, which should always be a last resort.
- After you both have agreed on a course of action and payment, your attorney will start negotiating with your debt collectors and lenders to settle. The charges could be paid in a lump sum or through monthly payments.
How to find an attorney
Contact a lawyer referral service in your area and ask for an attorney with experience in consumer law, debt collection defense, or the Fair Debt Collection Practices Act (FDCPA). You can find lawyer referrals in your area by checking the American Bar Association website or your state bar association.
When researching which attorney is right for you, it is worth it to do your homework. If you are a low-income consumer, you may qualify for legal aid. Make sure the lawyer has a good understanding of consumer law. Please make sure they are in good standing with your state bar organization. It is generally better to go with a lawyer you can speak with in person than a strictly online firm. There are databases available to help you find attorneys from the American Bar Association and the legal aid directory for your state.
Before you hire a lawyer, here’s what to ask
- Do you charge an upfront fee?
- Will I have to pay even if I lose my court case?
- How much of their work involves consumer law and representing consumers?
- How many similar cases have they handled?
Still wondering whether you should hire a debt settlement attorney? Check out this video:
Other debt relief options
READ MORE: Debt relief or bankruptcy — which is best for you?
The bottom line
While a debt settlement attorney is a viable option, you likely don’t need to hire one unless your debt settlement case also already includes a separate legal issue. If you’re already involved in a debt collection lawsuit, or your debt settlement is tied to a divorce, a lawyer is definitely your best option. If you’re simply looking for help negotiating a debt settlement, you’ll likely get more time and attention if you hire a legitimate debt settlement company.
FAQs
No, you cannot go to jail for nonpayment of a debt. There are a few exceptions, like violating a court order, not paying income taxes, or if you don’t appear for a debtor’s examination. A debtor’s examination is a particular proceeding under oath about your finances, where creditors look to collect from you via wage garnishment or bank levy.
You repay your debt in less time. The balance you owe is reduced, sometimes by as much as 50%. It’s a great way to avoid bankruptcy for those who can pay the settlement amount. Once the debt is paid off, debt collectors or collection agencies will stop calling. You avoid bankruptcy and get relief from overwhelming debt.
Yes, attorneys can negotiate federal student loans, but it is best only used if the student loan creditor is suing you. Working with a debt settlement company is a better option if you are not getting sued.
