Debt Settlement in California
Personal debt in California is, for many, a significant challenge. The numbers tell us that it is widespread, and that the balances owed are well above the national average.
The Los Angeles Times ranked California first in the nation for personal debt. The outstanding balance per person was $77,500 in 2010, while the national average at the time was $48,800. In 2012, the California State Controller's Office issued a study showing Californians owed as much as 7.4% of their personal income to lenders.
So, personal debt is an issue for Californians — and the reasons for it are numerous and nuanced — but it's not an unsolvable problem. One solution is debt settlement. The following information can help debtors who are considering debt settlement to understand the rules, regulations, and typical scenarios surrounding the process.
California: Debt Settlement as a Consumer Solution
First things first, California is not alone when it comes to personal debt. Approximately 9 million American reach out to organizations that can help them resolve debt, and many of these agencies work with debt settlement as one approach.
California is careful about how these organizations operate. Agencies must be registered with the state, and the Department of Corporations closely monitors all activity in this regard. Begin by checking that any credit counseling firm in question is properly licensed. The state posts its roster of approved agencies online.
When To Use It: While credit counseling in general is a prerequisite for debtors before they file for Chapter 7 or Chapter 13 bankruptcy, debt settlement is not. It is an option best suited to those who want and have the means to put a balanced owed behind them in one fell swoop. Successfully paying off a debt goes a long way toward improving one's credit rating.
How It Works: What debt settlement means for consumers is that an intermediary, often a nonprofit state-registered credit counselor — but sometimes an attorney or public accountant — negotiates a one-time payment with a creditor that is less than the full amount owed. The debtor sends the agreed-upon amount to the counseling organization, which then delivers it to the party to which the money is owed.
California Only: As of 2011, the fee that a third party can charge consumers for enacting a debt settlement plan is limited to 15% of the amount saved under the terms of the negotiated payment. Note that if you are handling debt settlement through a lawyer instead of a nonprofit counselor there may be additional legal and filing fees attached to your plan. There are also other kinds of fees that an organization may impose, such as $50 "education" charges. Be certain to find out up front what your agency charges for the services rendered. Also, take into account that the amount forgiven under a debt settlement place is almost always treated as taxable income at tax time.
California has rules that protect consumers all the way through debt-management and debt-settlement. The Department of Corporations maintains an advice line at 1.866.ASK.CORP, and encourages users to use it to answer further state-specific questions that may come up. You may also want to visit the Department of Corporations' credit counseling page.