Is Debt Settlement Legal?

No one wants to count pennies and wonder where his next dollar is coming from. If you are severely in debt and in need of debt settlement, you can legally settle outstanding debt---as long as your creditor is willing to accept a debt settlement offer. There is no law that requires a creditor to accept a debt settlement offer.

Identification

Debt settlement affords a consumer a legal option for repaying outstanding debt at a lesser value. For debt settlement to occur, a debtor and a creditor must accept the terms and conditions set forth in a debt settlement agreement. Frequently, a debt settlement agreement defines when a debt settlement amount will be delivered by the debtor, the method by which it will be delivered to the creditor (i.e., personal check, debit card, cashier's check) and the actions the creditor will take after payment has been received.

Considerations

Typically, a creditor will not accept or enter into negotiations for debt settlement until an account is 60 to 90 days past due or delinquent. At this time, a debtor can contact a creditor with a written or verbal request to enter into negotiations for debt settlement. Depending on a debtor's financial strength and ability to repay the balance owed---plus penalty fees---a creditor may refuse debt settlement. Most creditors have a minimum set of requirements that must take place before debt settlement negotiations can begin.

Past Due Accounts

A creditor may be more like to accept a settlement offer as a past due account ages. For example, as an account reaches the six-month mark, it is essentially valued at zero on a creditor's books. To avoid losing an account to age or bankruptcy, a creditor may accept a debt settlement offer of pennies on the dollar. However, debt settlement ultimately rests on which parties is the more skilled negotiator.

Bankruptcy

The fastest way to achieve debt settlement is for a debtor to inform a creditor of an intention to file for bankruptcy. Creditors know all too well that a bankruptcy filing discharges credit card debt and renders outstanding debts uncollectible under the law. While it is never advisable to arbitrarily file for bankruptcy, if a creditor suspects that a debtor may be headed in that direction, the debtor may up his negotiating leverage.