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Debt Settlement FAQ

Debt Settlement (also referred to as debt negotiation, negotiated debt settlement or sometimes incorrectly called debt consolidation) means that your debt is negotiated to a reduced amount and paid off in a lump sum. In some rare cases, multiple payments are utilized to pay off the debt, settling the account in full. Settlement is one of the most effective choices available to consumers. It’s a great choice if you have more debt than you can pay off in a 2 – 3 year time frame or are experiencing a financial hardship that has you falling behind (or just about to be) on your monthly payments.

Debt Settlement Frequently Asked Questions

See below for frequently asked questions about debt settlement, qualification and arbitration. Learn how debt settlement will affect your taxes, and how debt settlement differs from bankruptcy. This information may help you decide if a debt settlement program is a good choice for you.

What qualifies someone for debt settlement?

Qualified candidates are those who have a legitimate financial hardship, which has caused them to fall behind on their payments to creditors, or will cause them to fall behind in the near future. National Debt Law will not welcome anyone into the program that has the intentions of defrauding, deceiving, or swindling their creditors. We only represent consumers who are truly in need of our services & stand to significantly improve their financial situation.

Why should I use National Debt Law to settle my unsecured debt instead of handling it myself?

Our experienced debt arbitrators have established impeccable relationships with the creditors and collection agencies. Our arbitrators have extensive knowledge in Federal and State consumer laws & exercise the Fair Credit Reporting Act, Fair Credit Billing Act, as well as the Fair Debt Collection Practices Act to help settle your debt.

Who is holding my money while I’m waiting on a debt settlement?

Your funds will be held with an FDIC insured Dedicated account. This account will be opened in your name with you having ultimate control over its funds. The monies collected in this account get disbursed only at the time a negotiation is reached with the creditor and you agree with the settlement offer.

Should I keep paying my credit card bills?

We are not here to advise you not to pay your debts. However, if you are in a situation where it is hard to keep up with even the minimum payments, you might be in a legitimate hardship. Due to your legitimate financial hardship, you are able to participate in this savings program in order to help pay your debts in the future.

Do I have to include all my debts into a Debt Settlement Program?

No, you do not have to include all debts in the debt settlement process. You may choose which debts you would like to enroll in the program. Your debt consultant will help you decide the best plan of action based on your current financial situation.

How Will Debt Settlement Affect My Taxes?

The IRS considers a forgiven debt as taxable income, so at the end of the year, they will expect taxes to be paid on the settlement. IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, may exempt you from this tax. Please contact a tax adviser to discuss this issue further.

How is Debt Settlement different from Bankruptcy?

Bankruptcy is an option that is generally treated as a last resort. It will remain on your credit report for 10 years & you can be denied employment, state licenses, insurance, as well as the tenancy of an apartment. Most importantly, you can be denied virtually any type of credit with a bankruptcy on your report. In addition, since the bankruptcy laws have changed recently, it is even more difficult to qualify for Chapter 7, the method of liquidating assets to eliminate your debt. You will not be allowed to discharge alimony, child support, taxes, student loans, judgments, or any loan on the bankruptcy petition. Under Chapter 13 bankruptcy, your debt payments are simply restructured meaning you will still have to pay a percentage of your debts while you suffer the consequences of bankruptcy. Debt settlement is an alternative to bankruptcy.

What types of debt collection practices are prohibited?

Debt Collectors may not harass or abuse you and may not:


  • Use threats of violence or harm against the person, property, or reputation
  • Publish a list of consumers who refuse to pay their debts (except to a credit bureau)
  • Use obscene or profane language
  • Repeatedly use the telephone to annoy someone
  • Telephone people without identifying themselves
  • Advertise your debt

False Statements:

  • Debt Collectors may not use any false statements when collecting a debt. For example, debt collectors may not:
  • Falsely imply that they are attorneys or government representatives
  • Falsely imply that you have committed a crime
  • Falsely represent that they operate or work for a credit bureau

Where can you report a debt collector for an alleged violation?

Report any problems you have with a debt collector to the office of your state attorney general and the Federal Trade Commission. Many states have their own debt collection laws and your state attorney general can help you determine your rights.

What must the debt collector tell you about the debt?

Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe, the name of the creditor to whom you owe the money, and what action to take if you believe you do not owe the money.

Who is a debt collector?

A debt collector is any person, other than the creditor, who regularly collects debts owed to others. Under the 1986 Amendment to the Fair Debt Collection Practices Act, this includes attorneys who collect debts on a regular basis.

How may a debt collector contact you?

A debt collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at unreasonable times or places, such as before 8:00 a.m. or after 9:00 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves.

May a debt collector continue to contact you if you believe that you DO NOT owe money?

A collector may not contact you if, within 30 days after you are first contacted, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

What debts are covered by debt settlement?

Your personal, family and household debts are covered under the act. This includes money owed for the purchase of an automobile, for medical care, or for charge accounts. Click here for a full list of qualifying and non-qualifying debts.

What control do you have over the payment of debts?

If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.

What can I do if I believe that a debt collector violated the law?

You may have the right to sue a collector in a court of law. If you win, you may recover money for the damages you suffered and, in certain jurisdictions, you may recover statutory damages. In addition, in certain jurisdictions court costs and attorney’s fees may also be recovered.

May a debt collector contact anyone else about my debt?

A debt collector may not contact third parties, except only to find information on where and how to contact you. Collectors usually are prohibited from contacting such permissible third parties more than once. In addition, the collector may not tell anyone other than you (or a co-signor) that you owe money or that they are a debt collector.

General Debt Settlement Provisions

If you use credit cards, owe money on a personal loan, or are paying on a home mortgage, you are a debtor. If you fall behind in repaying your creditors, or an error is made on your accounts, you may be contacted by a debt collector. You should know that in either situation, the Fair Debt Collection Practices Act requires that debt collectors treat you fairly by prohibiting certain methods of debt collection. Of course, the law does not forgive any legitimate debt you owe. This section answers commonly asked questions about your rights under the Fair Debt Collection Practices Act. Read the full text of the Fair Debt Collection Practices Act on the FTC.gov website.

Is National Debt Law licensed in your state?

There is legislation in a minority of states which places restrictions and requirements on any form of debt management. While the federal government in many ways regulates debt settlement in addition to state governments, it’s important that you visit here to find out if we are able to legally provide services in your state.

Does National Debt Law charge upfront fees?

We do NOT charge any upfront fees. All our fees are included in your one low monthly program payment that is deposited into your FDIC insured Dedicated account; however, they are not charged to you until your enrolled debt(s) are resolved. Actual fees vary state by state and/or by debt amount enrolled.

Debt Collection Illegal Actions

  • A debt collector calls you at work and knows that it is inconvenient or that your employer forbids it.
  • A debt collector calls you before 8:00 a.m. or after 9:00 p.m. in your time zone.
  • A debt collector makes an excessive number of phone calls to annoy or harass you.
  • A debt collector knows that an attorney, whose contact information is known or is easy to locate, represents you and the debt collector continues to contact you.
  • A debt collector tells a person other than you, your spouse, or your attorney that you owe money. (If you are a minor, the debt collector can tell your parents or guardians about the debt.) Debt collectors can only communicate with other people to obtain contact information about you.
  • A debt collector misrepresents the amount, character, or legal status of a debt.
  • A debt collector gives others credit information about you that is false or should be known to be false.
  • A debt collector fails to honor your dispute or cease communication rights.
  • A debt collector threatens to take your property or garnish your wages when this action would not be legal or the debt collector does not actually intend to do it. Your property cannot be taken and your wages cannot be garnished without a court order (judgment).
  • A debt collector uses or threatens to use, violence, or any other illegal means to harm you, your family, your reputation, or your property.
  • A debt collector uses profane or obscene language when communicating with you.
  • A debt collector threatens you with a criminal prosecution or implies that you have committed a crime. Debt and credit issues are matters of civil law, not criminal law.
  • A debt collector tricks you into accepting charges for collect calls, telegrams, a C.O.D., etc.
  • A debt collector cashes or threatens to cash, a post-dated check before the date written on the check if the check is post-dated by five days or more.
  • A debt collector does not give three to 10 days advance notice before cashing a check that is post-dated by five days or more.
  • A debt collector claims to be an attorney or sends a letter made to look like it is from an attorney (unless the debt collector really is an attorney).
  • A debt collector sends a letter that is made to look like a government or court document when it isn’t.
  • A debt collector sends a government or court document that is not recognizable as such.
  • A debt collector threatens any action against you that is not legally feasible or that the debt collector does not intend to take.
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