Debt Settlement

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Debt Settlement And Consolidation

How Debt Collection Process Works (Usually in this order):

  1. The creditor will have its internal collection department attempt to collect on past due account.
  2. The uncollected debt is then assigned to a collectio agency, who act as the creditor's agent to collect.
  3. This debt might be sold to another collection agency for pennies on the dollar.
  4. Eventualy, the debt will end up with a law firm where lawsuits are initiated (for the purpose of a ganrishment).

Debt Settlement companies offer a solution that does not involve filing for bankruptcy. The program usually requires the client to stop paying on their debts. Eventually, the collection agency will offer to settle the debt for as little as 1%-50% of the original debt. It's a process that works well if clients have only a few creditors and they all settle. Still, the idea that clients can get rid of their debts without filing for bankruptcy often lead clients down this misguided path.

The issue with debt settlement programs when it involves numerous creditors (more than 4), is that not all creditors will agree to settle. Once one creditor decides to move toward garnishment, the ONLY option left is to file bankruptcy. It is a waste of time and money to settle with any one creditor if you will end up filing for bankruptcy anyway. Furthermore, the fees involved with debt settlement generally exceed the cost of filing for bankruptcy. Although debt settlement companies will advise clients to try and settle first and then resort to bankruptcy, you need to speak to a LAWYER before investing time and money into debt settlement.

in 2010, the Federal Trade Commission revised the regulations on debt settlement practices. FTC Chariman Jon Leibowitz explained that it was necessary to impose more restictions on debt settlement companies to protect the public:

"At the FTC we strive every day to make sure America's middle class families get straight deals for their dollars,"

"This rule will stop companies who offer consumers false promises of reducing credit card debts by half or more in exchange for large, up-front fees.Too many of these companies pick the last dollar out of consumers' pockets - and far from leaving them better off, push them deeper into debt, even bankruptcy."

Chariman Jon Leibowitz in FTC Issues Final Rule to Protect Consumers in Credit Card Debt

Lastly, debt settlement firms cannot stop lawsuits, garnishment, foreclosures, or repossession without filing for bankruptcy.


Most attorneys do not recommend debt settlement companies through outfits that are not law firms (licensed by the state bar). If you are approached by a "law firm" that is located outside of Washington, ask the "firm" if it is licensed to practice law in the State of Washington. Only a Washington State attorney can give you legal advice on your rights (under both state and federal law) and protect your legal interest.