How Does a Debt Settlement Law Firm Work?

I have worked in the debt settlement industry for almost ten years and have pervasive knowledge of how it works. Before we begin, I want to say this will be a rather lengthy article, and if you are not serious about finding a solution to your debt problem, stop reading now. The purpose of this article is to explain to you first how debt settlement works and what the process entails, both the good and the bad. Next, I will explain the differences between how a debt settlement law firm works and how it compares to a standard debt settlement company. The two approaches to this process differ significantly from one another. Because of this, debtors should learn these differences before enrolling in any program. This article will explain how a law firm operates because while many people may already know how a debt settlement company works, they may not.

First, I would like to state that debt settlement as a means of credit card debt relief is not for everyone; some people do not have the right state of mind, while others may benefit more from bankruptcy.

To begin with, I would like to go over the purpose of credit card debt settlement and how the process works. The purpose of debt settlement is for the debtor to get out of debt quickly without filing bankruptcy and save a lot of money. The goal of the debt negotiator is to negotiate a one-time lump sum payment on the debtors’ behalf at a far reduced amount than what the debtor currently owes.

These benefits are tremendous. The debtor could save themselves close to half of what they currently owe and be out of debt in a few years. However, as with most things in life, there are drawbacks to this process and there is no way to avoid them.

Any creditor must first allow the account to default before being willing to negotiate a debt settlement. There are no creditors in the world ready to deal when you are current and up to date on your monthly minimum payments. If they feel you can maintain your monthly minimums, then this is precisely where the creditors want to keep you. This is where their profit is made; paying the minimum each month will make you in debt for over thirty years, even if the interest rate is not high. If your rate is above 20%, you will be stuck in debt for over thirty years and pay back the creditors well over ten times the original balance in interest. They want you right there, exactly!

So understandably, they will not negotiate with you when you are current and feel they can still bank on your minimum payments for years to come. So the only way to ever deal is to fall behind on the monthly payments. Naturally, doing this will hurt your credit score and cause you to start getting collector calls. For this reason, some people may decide against debt settlement, as I mentioned above.

For those people already behind, this will not make a difference, and their credit will not be damaged any more than it already is; however, for those who are current, this will adversely affect their credit. It is quite a shame that this point alone may stop some people from using debt settlement, thus dooming them to being financial servants to the creditors for decades to come.

You must also be made aware that this process, in the end, will begin to help rebuild your credit. Thirty percent of your MyFICO credit score is your debt-to-credit ratio, which will look much better after you get out of debt. After two years, the negative remarks from falling behind will not bear much on your credit score. Your credit score is a snapshot in time and only uses the last two years of payment history to determine the score.

When falling behind, your goal is to save as much money as possible in the quickest possible time. Later, the debt negotiator uses this money to settle the debt by paying it off. The faster someone looks to save money and complete this process, the better, for many reasons. For one, the faster you are out of debt, the more money you stand to save and the less risk you take from the negative aspects of the settlement, such as lawsuits and further damage to the credit report.

This raises the question “How Does a Debt Settlement Law Firm Work?” in the article’s title. As I mentioned above, debt settlement has many advantages, including significant time and financial savings. Still, there are drawbacks, including collection calls and the potential for legal action.

The main difference between how debt settlement is handled by a debt settlement law firm and a standard debt settlement company is how they deal with the negative drawbacks. A law firm has much more legal power and is set up correctly to comply with its state’s laws.

Collection Calls

One of the first significant differences in handling debt settlement has to deal with collections calls. Nothing legally can be done to stop the original creditor from calling when you fall behind on your payments and your debt is still in their possession. However, once the creditor passes the account off to a third-party collection agency which will happen anywhere between 3-6 months after falling behind, things change. Once in the hands of the collectors, a law firm will have the power to stop all calls to their clients. If the collector continues to call and harass the client, legal action can be taken against that creditor, seeing as they will violate the FDCPA (Fair Debt Collections Practices Act).

So the client’s first advantage of using a law firm will be a much-decreased activity in collection calls, which is very important for some people. Any regular debt settlement companies claiming they can stop the calls are simply not telling you the truth, and you should be very wary of them.


A law firm’s next significant advantage concerning debt settlement is how a lawsuit can be handled. If you are unaware, once you fall behind on your credit card debts, the creditors/collectors hold the legal right to pursue you through the courts to collect the debt. However, I will mention that suing is not the mainstay of the collectors and is not exercised very often; it simply costs too much money and time on the creditor’s behalf with no guarantee of getting any money even if they were able to obtain a judgment anyway.

The law firm’s advantage is they can still legally contact and negotiate a settlement with your collector after they have issued a summons to court. A debt settlement company does not have this legal power. The collectors are very willing to negotiate a settlement even after the warrant has been issued; they realize they may get tiny, if anything, regardless, so being contacted by a reputable law firm that is willing to offer them money and settle the debt without wasting any time or money with going to court is very beneficial to the collector.

If you get sued and only have a standard company representing you, you can expect to go to court and try to figure it out yourself. This often results in a judgment for the debtor!

Correct Legal Set Up

The legal firm’s most significant advantage over a company is how they are set up. Most debt settlement companies are not legally allowed to work in all the states; many are not set up correctly to operate in their state.

The state’s attorneys and the FTC (Federal Trade Commission) are cracking down severely on these companies and shutting them down as fast as possible. When this happens often, the company does not have the money to pay back its clients for the fees they paid to a company that will no longer be in business and can no longer help to settle their debts. Now the debtor will be left holding the bag, having paid thousands in fees but still stuck in debt, and this nightmare scenario happens more than you may think. Thus making law firms a much, much safer option!

Another issue that many people have with debt settlement companies is they will not disclose how this process works and will sugar coats things and preach about the incredible benefits but never mention one downside. A law firm must legally tell everything about how this works before being able to enroll anyone into any structured payment plan. Many firms do not have your interest and will say anything to get you signed up, even if they know they are setting you up to fail.

This brings me to my last point; many unscrupulous companies will allow their clients to sign into a program, pay whatever they want, and put them into programs that are set up for much longer than they should be. By stretching a debt settlement program out, the savings and the potential for a lawsuit will decrease. These companies cannot legally give the client advice or assistance if they get sued; it is considered the unlicensed practice of law, and this is what I mean by them knowing they will be setting you up to fail. If this process takes over three years, possibly four in exceptional circumstances, you should seriously consider filing for bankruptcy. A law firm will be straight up and tell this to you, whereas many shady companies will keep trying to sign you up.

After reading this article, I hope you feel enlightened and now have a much better understanding of how debt settlement works and how a law firm can take advantage of you most. For the most part, I have been focusing on the negative aspects of debt settlement, but I feel it is essential for people to understand both the good and the bad, allowing them to make an educated, wise financial decision on how to get out of debt. But you must realize just how powerful the benefits of this process are! Saving close to half of what is currently owed and becoming debt free in a few years will benefit your current and future financial well-being. Credit card debt has a way of destroying people’s finances and their lives. Debt settlement is the perfect alternative for those who want to escape debt quickly and avoid the embarrassment of filing for bankruptcy.

I invite you to click the link in the signature box below to complete an application if you want to learn more about how hiring a debt settlement law firm might improve your financial situation. I welcome the opportunity to review your personal and unique position to see if debt settlement will be the right fit for you.

Phillip Congleton currently works as a debt analyst for the country’s largest debt settlement law firm, which presently helps thousands of American debtors find the correct path to debt freedom.

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