Do I Need a Debt Settlement Lawyer?

What is a debt settlement lawyer?

A debt settlement lawyer helps clients negotiate debt to reduce the balance owed, lower the interest charges and achieve more favorable repayment terms. They specialize in helping consumers who are overwhelmed by their debts.

These lawyers also use their knowledge of debt collection laws to defend borrowers against unfair collection practices. If you’re sued or need to consider bankruptcy, they can also represent you in court.

When to consider a debt settlement lawyer

You can take a do-it-yourself (DIY) approach to your debt settlement, but this involves calling multiple creditors and negotiating with multiple people, and there’s no guarantee it’ll even work. Hiring a debt settlement lawyer can help you achieve a more favorable outcome in certain situations. 

Here are a few instances where working with a lawyer can make sense:

You’re being sued by creditors

If you’re sued, it’s wise to hire an attorney to protect your rights. It’s easy to miss a deadline or answer the complaint the wrong way, which could hurt your defense. In some cases, the court may enter a default judgment against you because your inexperience or lack of attorney representation causes you to miss court deadlines.

You’re considering bankruptcy

An attorney can help you decide between negotiating a debt settlement or filing for bankruptcy. Many creditors know that they'll receive less money if you file bankruptcy, so they may be more willing to negotiate.

You don’t have time for negotiations

Trying to negotiate with multiple creditors at once can be tough. This is especially true when you have a full schedule of work and family responsibilities. Hiring a lawyer brings additional resources to the situation, helping you accomplish your goals more easily.

You’re not being taken seriously

Even though you have the best intentions when trying to negotiate, some creditors won't take you seriously. Involving a lawyer ups the stakes and lets creditors know that you’re serious about settling your debt.

You're intimidated by the creditors

Creditors often have teams of professional negotiators at their disposal. This can be intimidating to even the most confident consumers. Hiring a lawyer evens the odds and puts a professional on your team who knows how to negotiate and achieve better terms for your debt.

» MORE: Debt settlement pros and cons

Debt settlement company vs. lawyer: Which is better?

If you need help with reducing your debt, you can generally hire a lawyer or work with a debt settlement company. While both may help you achieve your objectives of reducing your debt, there are distinct differences between the two.

Debt settlement companies

Debt settlement companies specialize in reducing your debt burden. They negotiate your debts, but they often charge expensive fees and manage your debts through a third-party bank account. In some cases, they encourage borrowers to stop making payments in order to better negotiate with creditors. These tactics can lead to penalties, default interest rates, fraud and debt collection lawsuits.

Debt settlement lawyers

When you hire a lawyer to settle your debts, they have a legal responsibility to act in your best interest. They know the law and can protect you from unfair and illegal debt collection efforts. Lawyers can also represent you in court in case you’re sued or if you have to file for bankruptcy if negotiations fail.

"Debt settlement is normally a lengthy process, and the consumer will very likely get sued throughout the program,” said Jeremiah Heck, an attorney with Luftman, Heck & Associates in Ohio. “It’s very important to have an attorney licensed in the state of residence to be able to deal with these lawsuits. Most out-of-state debt settlement programs can do little to nothing when a consumer gets sued, and the lawsuit inevitably snowballs into destroying the entire program."

» MORE: How to get out of debt

How much does a debt settlement lawyer cost?

The cost to hire a debt settlement lawyer generally varies based on the services you need them to provide and how much money you owe. It’s usually best to weigh total attorney fees against the potential savings you could receive.

Some of the types of fees attorneys may charge include:

• Flat fees per creditor: Typical fees range from around $500 for settling simple credit card debt to more than $5,000 for complex situations
• Fees per hour: Typical hourly rates range from $125 to $350
• Fees based on your debt: The attorney bases their fees on the total debt owed
• A portion of the amount saved: An attorney may offer a performance-based structure for being able to save you a higher amount

Since attorney fees can be substantial, it may not be worth hiring an attorney if your debts are smaller. For example, if you only have $5,000 in debt, it may not be worth hiring a lawyer, given what you could end up paying in legal fees.

Bottom Line

When debt becomes too much to handle, consider working with a debt settlement lawyer. These lawyers specialize in negotiating consumer debt, and they can protect your rights against unfair and illegal debt collection efforts.

Attorney fees generally vary based on their fee structure and how much debt you have. They may be able to reduce your debt, lower your interest rate and make your debt payments more affordable. If all else fails, many debt settlement lawyers can also represent you in bankruptcy court if needed.