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Debt Settlement

A debt settlement occurs when you negotiate, typically through a third party, with your creditors to satisfy your debt for less than is actually owed. The third party will, for a fee, handle the negotiations and set up a payment plan such that you make payments to the third party and they make payment to your creditors.

What Are The Consequences?

If you are at a point where your income does not cover your debt then you are in a difficult situation. Debt settlement can help you avoid bankruptcy and get control of your debt, but there are consequences. When you enter into a debt settlement agreement it will negatively impact your credit and any amount forgiven by a creditor will count as taxable income by the IRS. The decision to enter into debt settlement can affect your financial future and should not be entered into without serious consideration.

What I Need To Know

Delaware has enacted legislation regulating how debt settlement is conducted in the state. Before you enter into an agreement you should receive in writing the services that will be provided and any pertinent facts and fees. You need to be aware of your rights as a consumer:

  • You cannot be charged for services unless an agreement is signed.
  • If finance charges and late fees will be reduced, a maximum of a $50 fee may be charged, as well as a monthly service fee not to exceed $10 per creditor remaining, with a maximum of $50 per month.
  • If creditors will be reducing the principal amount owed then fees up to 18% of the principal may be charged.

Reclaim You Financial Well Being

Whether to enter in to a debt settlement arrangement is a serious decision that can have a long-lasting effect on your financial future. It is important to take action but it is vital not to rush from one bad situation to another. Take your time, know your rights, shop around then move forward if it’s right for you.

Credit Counseling

According to Howard Dvorkin, CPA, and author of Power Up: Taking Charge of Your Financial Destiny, “Credit Counseling can be very helpful to people who have high interest credit card debt.” He adds, "Many people make the huge mistake of only making minimum payments. I always recommend that the first step should be a call to a creditable credit counseling agency for a free assessment."

The Delaware Office of the Attorney General administers the state’s Uniform Debt Management Services Act (UDMSA) issuing licenses, examining providers of debt management services and enforcing provisions of the law. 

Credit counseling is intended to provide consumers with money management advice, budgeting help, financial educational courses and personalized debt repayment plans when necessary. An agency may prepare a debt consolidation or management program designed to pay off debts. The consumer typically deposits money each month with the agency and the agency disburses payments according to arrangements made with creditors.

Debt Management Plans

In a debt management program, the agency may be able to negotiate lower total monthly payments by obtaining lower interest rates or extended loan terms for the consumer. However, the debt does not disappear; the idea is to lower total monthly payments to help the consumer better manage his or her monthly budget. While most credit counseling firms are non-profits, they may charge fees for their services and/or may receive financial support from creditors.

Where To Find Help

One of the nation’s oldest consumer counseling groups is the National Foundation for Credit Counseling (, formed as a clearinghouse for information more than 60 years ago, and today serves as a certifying agency. They list 10 member agencies serving Delaware.

The U.S. Department of Justice (DOJ) provides a list intended for consumers who are required to have counseling as part of a bankruptcy filing showing approved consumer credit counseling companies by state and a quick scan reveals only one company that is approved by the DOJ to do business in Delaware.

You may also search the Better Business Bureau (BBB)'s database for Delaware credit counseling businesses. You’ll find out about complaints against the businesses, how long they've been around and reviews filed by other consumers. The BBB rates businesses from A+ to F, so look for a highly rated company as a guideline for reliability. The BBB rating should be used as a research tool and not a final authority on its own.