Things to Know about Debt Settlement in Illinois

Due to the current state of the economy in the United States, many people are looking for ways to save money and help pay down their consumer debt.  One option some consider is using a third party, non-attorney debt settlement company to reduce the balances owed and the minimum payments on their credit cards. These companies often make claims that sound like ideal solutions to someone who is struggling financially. However, many of this companies fail to live up to their claims and often consumers end up in a worse financial position than before they started the program.

In 2010 the State of Illinois enacted the Debt Settlement Consumer Protection Act (the DSCPA) to regulate debt settlement companies and eliminate many of the unscrupulous practices that were prevalent in the industry. This law applies to "any person or entity engaging in ... the business of providing debt settlement service in exchange for any fee or compensation" or any person or entity that "solicits for or acts on behalf of" any such person or entity. (38 Ill. Adm. Code 145.5 (2011)) However, the law does not apply to certain categories of individuals, including attorneys that are authorized to practice law in Illinois and are actively doing so. Before starting a debt settlement program, it is important to research each company thoroughly to make sure the company is reputable. Things to look for when researching a debt settlement provider:

1.       Under the DSCPA, a debt settlement company must be licensed by the State of Illinois. The status of a debt settlement company can be looked up on the Department of Financial and Professional Regulation's website (http://www.idfpr.com/DFI/DS/debtsettlement.asp).

2.       Pursuant to the law, a debt settlement provider's fees are limited to a $50.00 initial or application fee that may be charged up front and are capped at a maximum of 15% of the total savings negotiated for the consumer.

3.       Before entering into a contract with a potential client, the debt settlement company must provide a written financial analysis and a good faith estimate of terms of the debt settlement plan they are proposing, including, among other things, the estimated length of the plan.

4.       Before entering into a contract with a potential client, the debt settlement company must provide a laundry list of disclosures, including but not limited to: the fact that debt settlement will likely have a detrimental effect on the client's credit rating and that the client should look into other means of dealing with their debt, such as nonprofit credit counseling and bankruptcy.

5.       The debt settlement company must provide a written contract that fully details the services to be provided and the fees that will be charged at the time that a consumer signs up with them.

If a debt settlement company fails to meet the criteria set out by the DSCPA, they are not providing lawful debt settlement services in Illinois and one should be wary of using their services. Also, remember a debt settlement provided, as defined by the DSCPA, cannot provide legal advice. However, an attorney can provide legal advice regarding many different types of debt relief measures. Therefore, it may be advisable to consult with an attorney before making any decisions regarding debt settlement.

 

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