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Debt Settlement

For people in Tennessee who have trouble paying their bills, debt settlement might be an option. If your monthly credit card payments are taking up too much of your monthly income, if you are late on making your credit card payments, and if you are seeking to regain control over your monthly budget, debt settlement might be a good way for you to improve your financial life.

With debt settlement, consumers have the ability to work with a debt consolidation service that negotiates with creditors (banks, credit card companies, etc.) to get the creditors to agree to take less than the amount owed. For example, if you owe a total $30,000 to three different creditors, a debt settlement plan might make it possible to pay $6,000 to each of the creditors, cutting your overall debt almost in half. (Every person’s situation is different, and you should not expect a “guarantee” of how much your debt settlement could reduce your overall debt.) 

Here are a few guidelines for how debt settlement works in Tennessee: 

Debt Settlement Services Must Register

According to the Tennessee court system, under the Uniform Debt-Management Services Act, all debt settlement and debt consolidation services in Tennessee must register with state regulatory authorities and maintain a $250,000 insurance policy and a security bond. Make sure that any debt settlement service is registered with the state of Tennessee. 

Customer’s Fees And Risks Must Be Disclosed

Debt settlement can be an effective strategy to reduce credit card debt while avoiding declaring bankruptcy, but this method also has risks. For example, failing to fully repay a debt will be reflected on your credit report, and creditors might still continue to call and pursue collections activities, even while you are in the process of debt settlement negotiation. Creditors may also have the right to sue you to recover money that you owe. 

Debt settlement firms charge fees to customers as part of the process of settling debt – and under the law in Tennessee, debt settlement companies are required to notify the customer about all of these fees, as well as disclose the possible risks involved.  Tennessee customers of debt settlement firms have the right to know the possible downsides, risks and costs of pursuing a debt settlement plan, before they commit to hiring a debt settlement agency. 

Transparency Of Funds And Agreements 

When a customer agrees to sign up for debt settlement in Tennessee, the debt settlement service must keep a trust account where the customer’s monthly debt payments are held. Customers also have the right to approve any deals with creditors – for example, the debt settlement firm cannot settle a customer’s debt for more than 50 percent of the debt without permission of the customer. 

The customer is also entitled to see the certification from each creditor when debt settlement deals have been reached, so you don’t have to “take anyone’s word for it.” Debt settlement companies work on behalf of their customers and act as a go-between with creditors, but the customers still have the right to see everything that is happening with their financial accounts. 

Credit Counseling

Here are some things to consider if you live in Tennessee: 

Credit Counselors Do Not Have To Be Licensed

According to this report from the FTC, Tennessee does not have any state-specific licensing requirements for credit counselors. So it’s up to people to make their best judgments to find a reputable Tennessee credit counseling service. Ask for referrals from your church, friends or relatives. Check with the Better Business Bureau to see if any complaints have been filed against the Tennessee credit counseling service that you are considering. 

Credit Counseling Services Must Meet Certain Requirements

In addition to the Federal Trade Commission requirements for credit counseling, the state of Tennessee has some specific laws and guidelines for how credit services companies can conduct business. For example, according to Tennessee law, Tennessee credit counseling services cannot charge “setup fees” of more than $75, and cannot charge more than $50 for initial consultations. Tennessee credit counseling services also cannot charge more than 8.5 percent of the amount paid by customers to the customer’s creditors each month. 

Risks Must Be Disclosed

Credit counseling can be highly beneficial in helping people get their monthly spending on track, and help live with a more disciplined budget as they get out of credit card debt with more manageable monthly payments. However, there are risks to credit counseling. Tennessee credit counseling services are required by Tennessee law to notify customers in writing – and have the customer sign and date the notice – that participating in a debt repayment plan (or debt management plan) could negatively impact the customer’s credit score and credit rating.  

For more details on Tennessee laws and requirements for credit counseling, debt management and related credit services, refer to the Tennessee Consumer Protection Act.