Myth or Fact: Can Creditors Still Sue You If You Opt for Debt Settlement?

Are you wondering how or why a debtor can still get sued after a debt settlement? Yes, that was the same confusion I had when I first encountered the concept of debt settlement. In this post we will determine the concept – “Myth or Fact: Can creditors still sue you if you opt for debt settlement?”

What is Debt Settlement

For context, debt settlement is an agreement made between your creditor and yourself, as the debtor, such that the total debt balance you owe is reduced to a particular amount which is to be paid in a lump sum instead of in installments.

Myth or Fact: Can Creditors Still Sue You If You Opt for Debt Settlement?

Now you’re wondering if the above arrangement will ordinarily bring about a lawsuit by your creditors against you. Of course, debt settlement by itself would not necessarily expose you to the risk of getting sued by your creditors. An agreement is an agreement anyways. However, the involvement of debt collection agencies in debt recovery and the common practice prevalent in the United States accounts for the issue of a lawsuit arising after debt settlement.

The Role of Collection Agencies

Collection agencies are third-party companies. There work is to help your creditors collect their money on the one hand and help you settle your debts on the other hand. This looks simple, just like a receiver, and should not warrant any court case once you have reached a formal agreement. Well, it is not always that simple. The practice is that debt collection agencies promise you they will help you settle with your creditors. You then send them some money which will be accumulated over time. They will then contact your creditor with the accumulated lump sum with an offer that the creditors accept the lump sum. This is the reduced amount as a complete settlement for the whole debt. The collection agencies make their money by charging you a particular percentage of the amount forfeited by your creditor.

Am I Still at Risk for Lawsuit?

Why are you still exposed to the risk of a lawsuit in a debt settlement arrangement by collection agencies? The answer is not far-fetched. First, the collection agencies are usually not lawyers.  Even if they are lawyers, they might not be licensed to practice law in that particular jurisdiction. More importantly, the problem is that as soon as you agree with the collection agency, you stop paying your creditor’s installment. This already constitutes a breach of the contractual agreement, which becomes actionable by your creditor. This is even more so that the creditor is not obliged to accept negotiations brought forward by the settlement agency.

Related Post: When to Resolve Dispute in Small Claims Court

Bottom Line (Can Creditors Still Sue You If You Opt for Debt Settlement)?

From the foregoing, you should know that dealing with collection agencies in a debt settlement arrangement could be risky.  This is because there are likely implications not being revealed to you by the agencies. One such issue is the likelihood of being sued. Therefore, as a debtor, you are advised to either pay up your debt or enter a debt settlement agreement with the creditor directly. Highly recommended is to hire adequately licensed attorneys guiding you through the process. If you still insist on using a collection agency company, be sure to do your due diligence on the company. You should also research the laws in your State to familiarize yourself on your rights as a consumer. Visit the FTC website here.

The whole idea of even thinking of working with a debt collection company is to help you overcome some of the financial obligations you are currently facing.  Without first doing some key research however, you might find yourself in more debt than you bargain for. It is best that you reach out to your creditors directly (the ones you owe money to) and see how best you can negotiate with them.

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