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While you can work out debt settlement on your own, many consumers in New York find it easier to get the help of a company. This company is supposed to negotiate your debt on your behalf. In return, you pay a fee. However, it's important to understand your debt settlement rights, especially if you live in New York City.
New York City Laws
According to the Department of Consumer Affairs in New York City, there are debt settlement companies under investigation for violating some of the laws specific to New York City. Debt settlement companies that offer their services over the phone (telemarketers that call you, or companies you call as a result of advertising) have to meet the following requirements:
- Debt must be settled before fees are charged: Up front fees might be illegal, since New York City requires that debt settlement companies selling over the phone must reduce the debt, or settle it, before charging a fee.
- You own the money in your account: Many debt settlement companies work by asking you to stop paying your creditors (your credit score will drop as a result) and instead deposit the money in a special account. The law says that this money is yours, and you can close the account whenever you want -- and that your money should be refunded to you, less any legally earned fees the company charges.
There are Financial Empowerment centers around New York City that can provide credit counseling help if you are concerned about debt settlement. Those living in other parts of New York State can start with a list of approved credit counseling agencies offered by the Justice Department.
“Many people find their way out of debt by working with a credit counselor. Also called debt management or budget planning services, these agencies help consumers pay off unmanageable debt. They can contact creditors to arrange lower fees and interest rates, and can create budget and repayment plans,” according to the New York Office of the Attorney General. The state defines budget planners as agencies that help “consumers pay off unmanageable unsecured debt. They can contact creditors to help arrange lower fees and interest rates (sometimes with better results than a consumer could normally negotiate) and can create a reasonable debt consolidation and/or repayment plan.”
How Counseling Works
Find a Credit Counselor
Since New Yorkers have been the victim of credit counseling scams in recent years, the Attorney General cautions residents to find a legitimate credit counselor.
Contact the Organization
Discuss their fee structure for credit counseling. “Any set-up 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,” according to the National Federation for Credit Counseling.
“Nonprofit companies will frequently base their fees on a sliding scale, or charge a flat rate or monthly fee for service,” according to the New York Office of the Attorney General. The office also recommends comparing fees from at least three different credit counselors to find the right credit counselor for your situation.
Talk to Your Counselor
Provide truthful information about your financial situation. Your counselor may provide advice or recommend a financial management course. Another option is a Debt Management Plan, where the agency negotiates with your lenders and pays your creditors directly.
If you find an agency that is not following New York Law, file a complaint with the state Department of Financial Services at 1-877-226-5697.
Take Action on What You Learn
Work to make lasting changes in your financial situation. Keep documentation of all credit counseling services and paperwork in case you need the information in the future.