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Debt Settlement

In credit counseling programs, education and guidance are provided, typically by a non-profit organization, and may include financial education, budgeting and debt management -- working directly with creditors to develop a payment plan combined with agreements to avoid penalty interest or late charges. In debt settlement, there are no such up-front agreements with creditors, and a debtor may be subject to additional fees, charges or possible lawsuits while working to reach an agreement.

“Debt settlement programs typically are offered by for-profit companies, and involve the company negotiating with your creditors to allow you to pay a ‘settlement’ to resolve your debt,” as explained on the Federal Trade Commission’s Consumer Information website. “The settlement is another word for a lump sum that's less than the full amount you owe.”

Georgia Specifics

The Georgia Governor’s Office of Consumer Protection lumps credit counseling, debt management and debt settlement under the term, “debt adjusting” to include discharging of debt. The office provides for strict penalties for non-compliant companies and limits the monthly fees a company may charge to 7.5% of an amount paid by consumers for disbursement to creditors in a debt management plan. The relevant legislation, Official Code of Georgia (OCGA) Title 18, Chapter 5, does not however specifically address debt settlement issues.

In 2003, the Georgia Supreme Court decided that a non-attorney company responding to a creditor lawsuit on behalf of a debtor by offering to mediate a debt settlement would constitute the unauthorized practice of law. In early 2013, the Georgia General Assembly turned down HB465, a motion to replace OCGA Title 18, Chapter 5 and permit companies to conduct debt settlement in Georgia. Thus, debt settlement cases in Georgia are generally handled by law offices, typically ones that focus on personal bankruptcy.

Avoid Debt Settlement Scams

The Federal Trade Commission offers advice on avoiding debt settlement scams. The FTC says you should avoid doing business with any company that promises to settle your debt if the company charges fees before it settles your debts or promotes a "new government program" to bail out personal credit card debt. Walk away from guarantees to make your unsecured debt "go away" or to be paid off for pennies on the dollar and, likewise, avoid a company that tells you to stop communicating with your creditors without explaining the serious consequences. Remember, no firm can promise you to stop all debt collection calls and lawsuits.

The Federal Trade Commission Money Matters website offers greater detail.

Where to Find Help

For help in finding reputable debt settlement attorneys, consumers in Georgia may wish to obtain Better Business Bureau information by searching the firm name and checking results that range from A+ (best) to F (worst).

Credit Counseling

While there are laws governing what credit counseling agencies can and cannot do, counseling agencies are not regulated or licensed through the Georgia Department of Banking and Financing.

What Georgia Residents Should Do

1. Contact a credit counseling agency.

The National Foundation for Credit Counseling maintains a list of member organizations in Georgia that meet specific standards. “Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But, beware — just because an organization says it is “nonprofit” doesn’t guarantee that its services are free or affordable, or that its services are legitimate,” says the Georgia Department of Banking and Finance. “In fact, some credit counseling organizations charge high fees, some of which may be hidden, or urge consumers to make ‘voluntary’ contributions that cause them to fall deeper into debt.”

2. Make sure that the agency is legal under Georgia Law.

Credit repair agencies are not allowed in Georgia per O.C.G.A. Section 16-9-59, which prohibits taking money for improving a buyer’s credit record, history or rating along with obtaining an extension of credit for a buyer. However, the Debt Adjustment Act, which also covers some nonprofit credit counseling agencies that meet certain restrictions, allow for some credit counseling and debt adjustment services to be legal. Even if you are not contracting for debt settlement, the act includes agencies that provide budget counseling and debt management services to follow the regulations outlined in O.C.G.A. TITLE 18 Chapter 5. Make sure that the agency has the proper insurance as well.

3. Ask about fees for credit counseling services.

“Any setup fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship,” says the NFCC website.

4. Meet with your credit counselor.

It is important to meet and provide your credit counselor information about your financial situation. Your counselor may provide advice or recommend a financial management course. Another option is a debt management plan, which involves the agency negotiating with your lenders. You would then make a monthly payment to the agency, which pays your creditors directly.

5. Follow your credit counselors advice.

Credit counselors will help you set budgets and manage your expectations. Following his or her advice can help you make the lasting changes you need for your financial situation. Keep documentation of all credit counseling services and paperwork in case you need the information in the future.