The short answer is YES, you can be sued even if you have a debt settlement or debt consolidation agency working for you.
In Minnesota, debt settlement or debt consolidation agencies are not usually lawyers. They promise to fix debt problems, but they often can’t do it quickly enough to stop a lawsuit against you. This means that even though you may have hired a company like Lexington Law Firm or Freedom Debt Relief to stop debts from getting out of control, a debt collector can still sue you. Once the debt collector has a court date, then the debt consolidation agency will usually not defend you in court. This is because only lawyers can defend people in court and most of the employees at debt settlement agencies are not lawyers. They are also usually nationwide companies, not local to Minnesota and so they can’t appear in Minnesota courts.
HOW DOES DEBT SETTLEMENT WORK?
Debt settlement works by having the borrower stop paying all of his or her debts and pay some money to a debt settlement agency instead every month. The debt settlement agency then tries to make a deal with each creditor or debt collector to accept as a lump sum less than the whole balance of the debt. Debt collectors usually buy debts for only 5-10% of the face value of it, so if they get paid 50% then they make a profit. Please note, the original creditor usually gets paid nothing when a debt collector gets paid off. It only makes a windfall for the debt collector.
WHY IS IT SO COMMON TO GET SUED WHILE DOING DEBT SETTLEMENT?
Shouldn’t the creditors see that you are trying to work with them and be patient to get the money? Wouldn’t that be better than starting a lawsuit? It feels that way, but in reality the debts are no longer with the original lender. The original creditor, for example: Citi Bank or Discover card, will have sold it to a debt collector like Portfolio Recovery Associates or LVNV funding. These debt collectors don’t have to worry about their reputation with consumers and just want to get a return on investment as soon as possible. If they start a lawsuit against you, then they know that you will try to pay them before paying anyone else.
It takes a long time to build up the money to settle a credit card debt. Most people pay $400 to $600 per month to a debt settlement agency, so it takes a long time for the debt settlement agency to have enough money to settle a big credit card debt. Think about it, if you have a $5,000 unpaid credit card, it will take 5 months at $500/month to have enough to offer a 50% settlement. 5 months for just one debt? That is a very long time. During that time some of the other debt collectors will get impatient and will start lawsuits.
WHAT CAN I DO TO STOP A LAWSUIT?
You have three options:
- you can prove that you don’t owe the debt. This is unlikely to work because you need proof that you already paid it or that they are suing the wrong person. In the 21st century, it is easier than ever to find people and to make sure that you are suing the right person.
- You can pay off the debt. Most people who have enough money to pay their debts do in fact pay the debts. The creditors sue so that they can garnish your wages and get paid even if you need the money for things like groceries and a place to live.
- You may have to qualify for Chapter 7 bankruptcy, so you can use the free Chapter 7 calculator below to estimate qualification, based on the bankruptcy forms.
Do you live in Minnesota and want a no obligations consultation to learn how bankruptcy would work for you? Just call us at 612-824-4357, or choose a time on this link: www.calendly.com/wwattorneys