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In consumer credit counseling programs, the focus is on education and budget guidance, typically offered by a non-profit organization and the program may include debt management or payment plans. The agency works with creditors to develop a payment plan and tries to negotiate agreements to avoid penalty interest or late charges. In debt settlement, such agreements may not exist and the goal is to obtain a lower total lump sum amount to be paid.
“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.”
How Settlement Works in Nebraska
Debt settlement in Nebraska is handled by attorneys or organizations that specialize in the practice and companies may be headquartered locally or outside of Nebraska. The Nebraska Secretary of State explains laws regulating debt management/settlement companies. They are required to post a modest $10,000 bond as part of the licensing requirements but the law does not set fee limits or related guidance. Attorneys working in debt settlement are likely to also work in bankruptcy however debt settlement is generally attempted before bankruptcy is contemplated.
Remember that debt settlement applies to consumer loans such as credit cards, personal loans, and medical bills but does not apply to any loan secured by collateral such as a car, boat or home. Any amount relieved by debt settlement may be subject to income taxes, so consult a tax adviser to understand any implications.
The Federal Trade Commission offers advice on avoiding debt settlement scams. According to their website, you should avoid doing business with any company that promises to settle your debt if the company:
- Charges upfront fees before it settles your debts
- Promotes a "new government program" to bail out personal credit card debt
- Guarantees it can make your unsecured debt go away or be paid off for pennies on the dollar
- Tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
- Tells you it can stop all debt collection calls and lawsuits
The Federal Trade Commission Money Matters website offers greater detail.
Where to Find Help
For further help in finding reputable companies, consumers in Nebraska can check the Better Business Bureau for complaints.
For consumers in Nebraska with continuing debt problems there is help available with the discipline, skills and credit knowledge offered by approved credit counselors.
How It Works
In addressing the subject, Howard Dvorkin, CPA, and author of Power Up: Taking Charge of Your Financial Destiny says,” 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.”
One of the main goals of credit counseling is to educate consumers on budgeting and money management. Credit counseling agencies provide financial education courses and personalized debt repayment plans if necessary. The knowledge gained and the structure and discipline realized from understanding spending habits and having a sound payment plan helps consumers achieve a measure of financial control.
Counseling agencies may also develop a debt consolidation or debt management program by working directly with creditors to arrange lower interest rates or extended payment terms combined with managed monthly disbursements on behalf of the consumer. The goal is to achieve a lower total monthly payment. The consumer pays the agency a fixed monthly amount and, in some cases an agency fee and the agency pays the creditors through the plan.
No agency can or should claim to make debt “disappear” and you should seek another agency if that’s what you are told. It took time to accumulate the debt; it will take time to pay it down. To help avoid being a victim of an unscrupulous agency, have a checklist of questions to ask, such as the one offered by the Federal Trade Commission.
Where To Find Help
The U.S. Department of Justice (DOJ) provides a list showing approved consumer credit counseling companies by state and a quick scan shows a mix of agencies located in or approved to serve clients in Nebraska. You may also search by region using the Nebraska Better Business Bureau (BBB) site to find credit counseling businesses and reviews.