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Do I need a debt settlement lawyer?

A lawyer can help if you’re considering bankruptcy or being sued by creditors

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Eliminating debt is one of the most important steps in achieving financial freedom. Overwhelming debt payments can cause mental and physical harm if not addressed. Monthly debt can also prevent you from saving toward your goals, like retirement or a college fund for your children.

Many people in debt are unsure how to start or whom to talk to when creating a plan. While you don't need a lawyer to consolidate your debts, you may want to consider one if you’re attempting to settle for less than you owe.

Key insights

  • You don't legally need to hire an attorney to consolidate debt or negotiate with creditors.
  • Attorney fees may outweigh the benefits, depending on the size of your debts.
  • You may need to hire an attorney if creditors won't negotiate, you're being sued or you need to file for bankruptcy.

What do debt settlement lawyers do?

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

They 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 you should consider a debt settlement lawyer

You can take a do-it-yourself 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 makes 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.

» MORE: What is debt collection and how does it work?

You’re considering bankruptcy

An attorney can help you decide between negotiating a debt settlement or filing for bankruptcy. They may be able to negotiate better terms with creditors with the threat of bankruptcy looming over their heads. Many creditors know that they'll receive less money if you file bankruptcy, so they may be more willing to negotiate.

You have unmanageable debt, liens, etc.

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.

» MORE: How to get out of debt

Creditors are unwilling to negotiate

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.

How much does a debt settlement lawyer cost?

The fees to hire a debt settlement lawyer vary based on the services you need them to provide. In short, it won’t be cheap. Attorneys may charge a flat fee, hourly rate, a percentage of your debt or a portion of the amount saved.

  • Flat fee per creditor: The average fees range from $500 for simple credit card debt to more than $5,000 for complex situations.
  • Fees per hour: Average hourly rates range from $125 to $350.
  • Based on your debt: The attorney bases their fees on the total debt owed.
  • Portion of the amount saved: This performance-based structure rewards the attorney for being able to save you a higher amount.

Hiring a debt settlement attorney depends on how much money you owe. Consider the amount the attorney charges against the potential savings you could receive. Attorney fees can be substantial, so 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.

Lawyer vs. debt settlement company: Which is better?

When you're looking to reduce your debt, you actually have a few options. Both hiring a lawyer and working with a debt settlement company are options for anyone who knows they can’t handle the debts on their own. While both may help you achieve your objectives of reducing your debt, there are distinct differences between the two.

Using a debt settlement company may negatively affect your credit and cause other problems, so make sure you do your research before you choose to use one.

Debt settlement companies specialize in reducing your debt burden. However, there are many scams in this industry, so it can be difficult to choose a legitimate firm. These companies 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.

When you hire a lawyer to settle your debts, they have a legal responsibility to act in your best interests. They know the law and can protect you from unfair and illegal 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.

Jeremiah Heck, an attorney with Luftman, Heck & Associates in Dublin, Ohio, explained exactly why lawyers may be a better option: "Debt settlement is normally a lengthy process, and the consumer will very likely get sued throughout the program. 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."

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    Can I settle debt myself?

    Yes, it is entirely possible to settle debts yourself. If you’re unable to achieve your goals or a creditor is unwilling to negotiate, it can make sense to hire an attorney to negotiate on your behalf. Debt settlement attorneys also understand consumer protection laws and can protect you against illegal and unfair debt collection efforts.

    What’s the difference between debt settlement and debt consolidation?

    Debt consolidation is the process of taking out a new loan to pay off your old loans and combine your existing debts into one brand-new loan. You'll repay all of the amounts owed according to the new repayment terms.

    A debt settlement is a negotiation to repay a portion of your existing debt in a lump sum or with monthly payments. You may receive a Form 1099-C and have to pay income taxes on the amount forgiven.

    Will settling debt hurt my credit?

    Creditors may report a debt settlement to the credit bureaus, which adds a negative mark to your credit score. These negative marks indicate to current and prospective lenders that you only repaid a portion of the amount owed. Negative marks from debt settlement can stay on your credit report for up to seven years.

    How much debt is too much?

    The amount of debt you can comfortably carry depends on your income, monthly expenses, lifestyle and other factors. Generally, if you’re feeling like you can’t afford your debt payments each month and you’re stuck in a revolving door of never-ending debt, you’ve reached your debt limit.

    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 vary based on 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 that is the best strategy to fix your finances.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page. Specific sources for this article include:
    1. Experian, "Will Settling a Debt Affect My Credit Score?" Accessed Feb. 17, 2023.
    2. Consumer Financial Protection Bureau, "What are debt settlement/debt relief services and should I use them?" Accessed Feb. 17, 2023.
    3. IRS, “Topic No. 431 Canceled Debt – Is It Taxable or Not?” Accessed March 3, 2023.
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