Debt settlement laws in Kentucky set rules for how companies can interact with residents with regards to debt. They are intended to both protect the residents from fraudulent business practices and provide a framework for how businesses can properly assist customers. These laws are important to anyone seeking debt settlement advice.
Overview of Debt Settlement
Debt settlement is different from debt negotiation (in which a person's debts are set to agreed-upon levels and paid to creditors) or debt consolidation (in which a person's debts are aggregated and paid to one debt consolidation service). Debt settlement is a for-profit business (usually) in which a person pays a company in installments up to a level at which the company agrees to complete the payments to creditors itself at a lower rate. Because these are for-profit businesses, there are risks for fraudulent activities.
Unlawful Business Practices
Debt settlement companies are required by law to register with the Kentucky Attorney General's Office. The companies are limited as to how much they can charge customers for services: initial set-up fee is a maximum of $75, annual consultant fee is $50 and periodic fee is no greater than 8.5 percent or $30. Debt settlement companies sometimes make outrageous, unsubstantiated claims about their capabilities, charge high fees and require payments in advance. They also may make false claims about how the service will improve one's credit score. All of these activities are illegal, though punishments are rarely enforced.
Consumer Debt Settlement Rights
The maximum interest rate debt settlement and collection companies can charge under the Fair Debt Collections Practices Act (FDCPA) is 8 percent. Also, consumers have wage protection in Kentucky of 75 percent of disposable weekly earnings, or 30 times federal hourly minimum wage. Debt settlement companies are not authorized to directly take money from a person's account without the person's approval. Also, there are statutes of limitations on different debts that do not need to be settled at all. These include: oral agreements, five years; written contracts, 15 years; promissory notes, 15 years; and open accounts (credit cards), five years.
Government Debt Settlement
For debts owed to the Kentucky government or an entity that has called on the government to force someone to pay, there is an option for residents called the "offer for settlement." If a resident owes taxes to the state or the other party, the offer for settlement can be applied for to reach an agreement. A person applying for the offer must file all required income tax returns from past years, must not be in bankruptcy proceedings and must submit all necessary papers to the government. There are only two valid categories for the offer: doubt as to collectability (the person owes, but cannot pay) or doubt as to liability (the person may not owe).
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