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For Ohioans who are in the toughest of situations -- when their debt is so overwhelming that no matter how much time they take, they're simply not going to pay it off -- debt settlement is often the only alternative to bankruptcy. While it could involve a long-lasting hit to their ability to get credit, debt settlement is a way to clear off what is owed by negotiating an amount that can reasonably be paid. That negotiation is typically handed by a debt settlement company, which operate under strict rules in Ohio.
The reason for the consumer protections, and restrictions on companies, is due to how vulnerable the participants are. They owe lots of money and entrust what they are able to come up with to the company that negotiates the settlement and then holds what is paid to them until it reaches certain levels and can be used to satisfy the debts.
Before entering into an agreement with any service, check its reputation with the Ohio Attorney General’s Office and Better Business Bureau. Check for business filing information with the Ohio Secretary of State, and do a basic Internet search of the business’ name and information.
Risks Of Debt Relief Programs
Some of these programs do not comply with state or federal law. For example, some debt relief services may charge you hundreds or thousands of dollars before doing any real work, even though federal regulations prohibit them from charging advance fees before providing any services. Additionally, some services may tell you to stop paying your creditors and promise to pay them on your behalf. Other programs may help you set up bank accounts where you will automatically deposit money on a periodic basis in order to save money to pay off your creditors.
Be aware that you still are obligated to pay your creditors during this time. Any time you stop making payments to your creditors, you risk damaging your credit rating and owing more in late fees and interest.
The Ohio Debt Adjusters Act limits how much a company can charge a client. The initial consultation, for instance, may not cost more than $75. And the company may not collect more than $100 a year in consultation fees or charge a client more than 8.5 percent of how much they pay each more, or $30, whichever is greater.
In addition, the company is required to pay creditors within 30 days of collecting money from a client, and that money must be held in a separate trust account. The company must also have $100,000 in insurance coverage.
Red Flags To Look For
Ohio's Attorney General has warned residents to beware of debt settlement companies that make grand claims of being able to settle debts for pennies on the dollar. Those sorts of quick-fix promises are not realistic, they warn, and are signs of a less-than-honest company. “With the average American carrying thousands of dollars in credit card debt, debt settlement services can seem very appealing,” Attorney General DeWine said in 2012. “But far too many of these businesses fail to deliver on their promises and leave consumers in a worse financial situation.” The Attorney General's office enforces the rules that are currently in place.
What To Do
If debt settlement is right for you, check out the company you are thinking about doing business with. Check with the Ohio Attorney General’s Office and the Better Business Bureau. The Attorney General also recommends Ohioans make sure the business is properly registered to do business in the state and that they perform an Internet search of the business' name to see what others have said.
"A legitimate credit counseling agency offers a range of services from basic budget counseling to educational courses about finances to debt repayment plans," according to Ohio Legal Services. Ohioans who go to a credit counseling agency should know that they could be asked to pay some fees and that creditors help fund the agencies, according to Legal Services.
The agencies primarily focus on unsecured debts, such as credit cards, and can -- if a thorough evaluation shows the need -- arrange a debt management plan. Debt management plans are set up by credit counselors to pay off the debts by depositing money every month in a special account and then disbursing the payments based on arrangements worked out with the consumer and the creditors.
Rules for Ohio Agencies
Credit counseling is regulated by the state in the loosest of terms. Credit counseling agencies are required to be registered businesses with the Ohio Secretary of State's Office and must comply with any applicable law when it comes to dealing with issues of credit. Ohio Attorney General Mike DeWine's office recommends that Ohioans looking into credit counseling should seek a nonprofit counseling agency that is certified by the National Foundation for Credit Counseling.
In addition, consumers can look at the list of credit counselors approved for Ohio by the U.S. Department of Justice for those who are required to have counseling as part of a bankruptcy filing.
It is particularly important for Ohioans to use a reputable, established and accredited credit counseling agency when they are using a debt management plan to repay their debts. Using an operation that doesn't have a track record of setting up and implementing such plans could leave a consumer vulnerable to being taken advantage of.