Debt Settlement Company Trouble

debt settlement company

A debt settlement company might accidentally revive the collectability against you of an old debt.

debt settlement companyA debt settlement company often does you more harm than good. One of the worst mistakes I have seen them do is to revive the statute of limitations on a debt that you legally didn’t need to pay. First, I let’s understand that many of your old debts may have been purchased by a debt buyers. Those folks buy old debts for pennies on the dollar. They don’t care how old the debt is, because they want to trick you into paying it even when you don’t legally have to.

The law recognizes that a creditor should not be able to sue you after an unreasonable amount of time has gone by. Every state has a “statute of limitations” that sets the longest amount of time that a creditor can wait before it might lose the right to sue you.

The easiest way to win a lawsuit over your old debt.

If a creditor sues you too late, you have the right to go into court and have the case dismissed. It should be a “slam dunk” win for the consumer. After that, you don’t have to pay them a dime. But, you can lose that protection if you make a mistake.

The “statute of limitations” is revived if you, (or your “debt settlement company”) makes a payment on the debt, no matter how small the payment is. And in some places, you can also lose your protection even you don’t pay anything, just by acknowledging in writing that you owe the debt.

Here’s the mess your debt settlement company get you into.

Let’s say you hire a debt settlement company to resolve your old debts. They usually begin by contacting your creditors. The purpose of their communication is to inform all of your creditors that you want to work things out and make amends. Your debt settlement company will usually send that letter to all the creditors listed on your credit report. But your credit report can still legally list old debts for 7 years, which is often longer than the statute of limitations on those old debts.

Another danger in dealing with a debt settlement company is they might send installment payments to your creditors, including very old credit debts that have already passed the statute of limitations period.  Any payment made to them, even through your debt settlement company, revives the statute of limitations!

If you really want to know your full range of legal rights and options, then go see a bankruptcy lawyer. You are might be throwing your money away if you expect a debt settlement company can help you.

There is no easier way to get out of debt than by filing bankruptcy, if you are eligible.


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Leon Bayer and Jeffrey Wishman are Los Angeles Bankruptcy attorneys. They have been practicing bankruptcy lawyers in Los Angeles for 37 years and are Certified Bankruptcy Specialists by the State Bar of California. These are lawyers who bring experience, skill and creativity to the highly complex area of bankruptcy law. At this Los Angeles law firm, the your initial consultation with an expert is free. Mr. Bayer is a coauthor of Nolo's The New Bankruptcy: Will It Work for You?, authors the “Ask Leon” series on Nolo’s Bankruptcy, Debt & Foreclosure blog, and writes on bankruptcy topics for Nolo’s website. In addition, Mr. Bayer devotes a significant number of hours to volunteer legal services. The State Bar of California has commended Mr. Bayer for this work every year since 2004.