debt settlement frequently asked questions

debt lawsuit faqs

You can find some of the most common frequently asked debt relief questions about debt settlement and debt lawsuits here. If you don’t find the answer to your own question or would like to speak to us about your unique situation, please give us a call at 858-217-5051 or contact us using our contact form. We’re a debt relief law firm in San Diego, serving all of Southern California. We offer debt help to our clients by aggressively fighting your creditor to greatly reduce your debt or wiping it out altogether.

Debt Settlement Frequently Asked Questions

Find FAQ’s on Debt Settlement for Credit Card Debt, Student Loan Debt, Medical Debt, Second Mortgage Debt, Payday Loans and Small Business Debt.

Through debt settlement we negotiate down your debt to a reduced amount that you pay off in a lump sum or over a short-term payment plan. Debt settlement is a good choice if you have more debt than you can pay off in a 2-3 year period or if you have experienced a significant financial hardship that has caused you to fall behind on your monthly payments.
In a consolidation, all of your debts are added up into one large lump sum. You will have to pay back the full amount of your debt, but at a reduced interest rate. With a debt settlement, you put aside money every month. That money is put in a savings account so that we may offer your creditor a lump sum payment. We negotiate with your creditor to significantly lower the amount you pay back on the total debt you owe.
Yes, at first. In order to settle your debts, you must make the difficult decision to stop paying your creditors. Non-payment of your debts negatively impacts your credit score and your credit report will show missed payments for 6 months until the debt is charged off. These negative marks remain on your credit until you settle and pay off the debt. The good news, credit experts estimate that your score will rebound in as little as 12 months after completing a debt settlement.
A charge-off means the bank determined that the debt due by a consumer is unlikely to be collected. Federal regulations require creditors to charge-off an account after 180 days of delinquency and the banks get tax exemptions for the debt. Creditors view charge-offs as part of the cost of doing business with consumers. A charge-off does not mean you no longer owe the debt. The debt is still legally valid and subject to collection and subject to state laws that limit the amount of time that a creditor can legally collect on the debt. California limits this to four years. The method of collection includes collections either internally or through a third party collection agency or a lawsuit.
The first rule in tax law seems to be that everything is considered income. You just have to figure out a way to exclude it. This holds true for debt settlement. The amount of debt you do not have to pay back, the forgiven debt, is considered income by the IRS. You will receive a Form 1099-C in the year that your debt is settled. That does not mean that you automatically have to include this as income in the year the debt is forgiven. The IRS has an insolvency exception. Insolvency happens when your debt liabilities exceed the fair market value of your assets. The IRS explains the insolvency exclusion in Publication 908: “You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. Determine your liabilities and the fair market value of your assets immediately before the cancellation of your debt to determine whether or not you are insolvent and the amount by which you are insolvent.” Clear as mud? Here’s a simple solution. Call your tax professional for advice and guidance. You may be pleasantly surprised to hear that you qualify for insolvency under the Tax Code with no further tax liability.
No right answer proves correct for every situation. That’s why you can’t believe everything you read and you must consider the source. Many self-serving companies will tell you that whatever service they are trying to sell you is the only option. The truth is, you have options each with pros and cons. For some, a Chapter 7 Bankruptcy (your debts are completely eliminated) is the best option. In other cases, a Chapter 13 Bankruptcy allows you to eliminate your debts for a smaller percentage than you owe and even allows you to strip a lien from your property if the fair market value is less than what is owed. For others, debt settlement is the best option, especially if you can’t qualify for a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy results in you paying 40% or more back to your unsecured creditors. Seeking the advice of an attorney is always recommended since they will give you an honest answer to these difficult questions, even if it means referring you out to another attorney and losing out on a fee.
Yes. Debt settlement contains no “secret sauce” formula. If you owe a small amount to one or two creditors you could talk to them to settle your accounts yourself. However, if you owe significantly more money, you should consult an experienced debt settlement attorney. It’s often difficult to determine what defines a good settlement. Should you disclose your financials? Is the offer you receive the best you’re going to get? What makes this a valid offer? Does it need to be in writing? Is the written offer valid and binding on all parties? Hiring an experienced and knowledgeable debt settlement attorney serves your best interest. We know the answers to these difficult questions. Hiring a debt settlement attorney relieves you of the stress of dealing with this situation on your own. Imagine the relief you will feel knowing that an experienced debt settlement attorney will handle all of the negotiations, finalize all of the settlements and create a plan to fund these settlements.
The non-payment of your debts as they become due is considered a breach of contract. Your creditors can sue you under this theory for your failure to make payments on your credit card debt. If you are with a debt settlement company, you’re likely to be wished good luck on your way out of their office because debt settlement companies cannot step in to represent you in a lawsuit. A licensed attorney can. Seeking the assistance of an experienced attorney for your debt settlement gives you the added protection of having an attorney ready to step in to assist you in the event that you find yourself as a Defendant in a credit card lawsuit.
No. In general, creditors are permitted to contact debtors once the debtor goes delinquent. Creditors use these calls to obtain information they can later use against you to collect the debt. The advantage of proceeding with an experienced debt settlement attorney is that these calls will stop. As soon as we begin representing you, your creditors are placed on notice and not permitted to contact you. If the creditor chooses to ignore this notice and continues to contact the debtor, they violate state and federal debt collection practices laws and could face monetary penalties.
It’s no big secret that banks are in the business of making money. Especially when they get a consumer stuck in the cycle of paying the minimum monthly payment, resulting in a small principal pay down. But, once you stop paying the minimum, they lose their income and debt settlement allows them a way out, since the banks can now claim your account as a loss. They then use the losses to offset other profits and reap the benefit of creative bookkeeping.
Good question. If you are asking yourself this question, you should be consulting with an attorney. If you face $10,000 or more in unsecured credit card debt, medical bills, HELOCs, payday loans, personal loans or private student loans, you should definitely consider the possibility of debt settlement as an option, even if you are researching other debt-relief options such as bankruptcy or debt consolidation. Most consumers go through this process when deciding on a major purchase. You should do the same when making a decision regarding your financial future.
First and foremost, make sure you choose a law firm. Some debt settlement companies claim to be attorneys but only utilize an attorney as a front to meet state and federal guidelines. You should make sure the attorney handles all aspects of the debt negotiation process, not a back office support staff. We also recommend that you check out the attorney with the State Bar of California at There you can see the attorney’s length of time practicing, as well as any disciplinary actions taken against that attorney. If you find yourself as a Defendant in a creditor lawsuit, do you want an attorney fresh out of law school handling your file? Make sure you are working with an experienced attorney. Ask the attorney about their experience, specifically in handling creditor lawsuits, not the combined experience of the firm’s attorneys, but the attorney actually responsible for handling your legal matter, the one that will be standing next to you at trial.

Debt Lawsuit Defense Frequently Asked Questions

The first notice you receive about a debt collection lawsuit is likely to be the “Summons and Complaint,” which outlines the claims against you. The “Summons” basically is ordering you to appear in court for something and the “Complaint” is the actual lawsuit. It’s essential that you file a response to this document with the court. You want to avoid having a judgment against you automatically, which is known as a default judgment.
Your debt relief attorney will first ask for proof of your debt. The plaintiff (attorney for the creditor) has to prove the allegations against you in order to win the case, so your debt relief attorney should request that your creditor provide evidence of the claims. The plaintiff may not have the necessary proof, which may open the door for a debt settlement before the case goes to trial.
Your debt relief attorney will help you determine whether the lawsuit filed against you complies with the Statute of Limitations. A creditor does not have an unlimited amount of time to initiate a lawsuit to collect a debt. In California, they must file the lawsuit within four years from the date the debt became due. A debt collection lawsuit can be defended by showing that the plaintiff did not file the lawsuit within that amount of time.
Your debt relief attorney can determine if there was improper service in the delivery of your lawsuit. There are certain requirements that the plaintiff must meet in terms of notifying you of the lawsuit. In general, you must be served with the Summons and Complaint by a police officer or other official at the place of your normal residence. If you were not, you may have a defense based on improper service.
Your debt relief attorney may be able to fight the debt collection lawsuit with a counterclaim. You may have a claim against the plaintiff debt collector if they’ve acted in violation of the law, especially the Fair Debt Collection Practices Act. The FDCPA allows you to recover attorneys’ fees and costs if the plaintiff does not comply with its provisions.
Your odds of getting out of your lawsuit with success are greatly increased with the help of an attorney.  An experienced debt attorney knows the law regarding debt collection lawsuits, can protect your legal rights, can identify if there is grounds for lawsuit dismissal and an help you repair your credit rating by making sure credit reporting agencies list accurate information about your financial dealings.
Yes, Your debt relief attorney can try to reach a debt settlement with the plaintiff attorney before going to trial.  A debt settlement of your lawsuit is basically an agreement that you enter into with the plaintiff attorney. You agree to pay a certain amount of your debt under terms that your debt relief attorney will negotiate with the creditor. In most cases, this amount will be cents on the dollar with respect to the total amount you owe. In exchange for the lump sum payment, or series of installments over a period of time, the creditor will agree to dismiss the lawsuit against you and the case will be over.
Usually, the attorney will be open to a debt settlement because ending the case reduces the expenses that the student loan creditor will pay their attorneys to pursue the matter against you.
The debt settlement may still be reflected upon your credit report unless your debt relief attorney negotiates to have your creditor file the settlement with the credit reporting agencies. The court case doesn’t automatically disappear from your credit history unless the creditor takes action. Your credit rating may drop due to the settlement, as not paying your debt in full is considered negative history. However, your score is impacted less than letting the debt remain on your report or filing bankruptcy. And the good news is that credit experts estimate that your score will rebound in as little as 12 months after completing a debt settlement.
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