Debt Settlement in New York

With the average U.S. FICO® Score now sitting at 711 [1], the corresponding average American credit card debt at $6,004, rising unemployment, and the continuing adverse effects of the pandemic, millions of Americans are facing the build-up of considerable debt that they are unable to pay off. 

New York is the third most expensive city to live in the U.S. and the rate of credit card delinquency is amongst the ten highest in the country, currently accounting for more than $58 billion. For those New Yorkers wishing to address their financial situation effectively, debt settlement may well be one the most effective forms of debt relief—provided they qualify for it. In exploring this option, receiving accurate and professional advice from a qualified expert, such as a debt settlement attorney, for example, will be key in terms of making an informed decision and moving forward with negotiations in the most efficient way possible.

Debt settlement is one way of dealing with accumulated unsecured debts, meaning debts that do not have a security interest in collateral, such as a house or car. Such debts commonly arise from credit and department store card bills, medical and cell phone bills, signature loans, old repossessions and judgments, private student loans, personal lines of credit, etc. The desired outcome of a successful debt settlement negotiation would be to attain a (substantial) reduction of delinquent debt by reaching a settlement payment for unsecured debts that will be less than the principal balance actually owed. In practical terms, this means reaching a settlement whereby one pays less than the total debt owed, as creditors may be willing to ‘forgive’ part of the total amount of the debt and accept lower payments, making this a potentially quicker, as well as more workable and effective option for many people currently struggling with their finances.

New York Particulars

As mentioned above, opting for debt settlement is one of the options debtors have to address accumulating unsecured debts. In this respect, it is important to bear in mind that, in accordance with the statute of limitations, in the State of New York creditors have a limited period of 6 years to attempt collection on debts by filing a debt collection lawsuit for a consumer credit transaction. The corresponding limit for store credit cards (like a Bloomingdale’s card, for example) is 4 years. This period commences on the ‘date of the default,’ calculated at approximately 30 days after making the last payment. Attention must also be paid to the fact that, if the company to which the money was originally owed is based outside the State of New York, the statute of limitations may be less than 6 years. 

In any event, if a payment is made at any point after the first time one stops paying, then the creditor’s time to commence a debt collection action starts again [2]. Therefore, before deciding on any type of debt relief, including debt settlement, it is imperative to:

  • Determine the exact amount owed to each creditor, and whether all or part of said delinquent debt constitutes unsecured debt.
  • Be aware of the original creditor’s particulars.
  • Keep a detailed and precise record of payments made, including dates, as well as any contact—written or other—one may have had directly with creditors or debt collection agencies.

Available Options

Debt settlement entails direct negotiations with creditors in order to reduce the amount owed, which one can either conduct personally or through a representative, such as an experienced debt settlement attorney. The main goal is to negotiate a better payment plan or settle or reduce one’s unsecured debt, as per what is set out above. If successful, this can be in the form of one lump sum or via a reasonable installment plan that will take into consideration the debtor’s particular circumstances. 

Other options include: 

  • Continuing to make minimum monthly payments until the amount owed is paid off. The downside to this approach, even if this turns out to be feasible—which is hardly ever the caseis that it will inevitably take much longer to clear the debt and will lead to increased costs, considering the accumulating interest that will continue to be charged with each payment.
  • Taking advantage of balance transfers, meaning moving debt from one credit card to another, if an introductory 0% interest offer is applicable on the new card. Even though this will reduce interest payments, at least for a while, it does not actually work in terms of reducing the debt or offering a more realistic payment plan in the long term.
  • Considering Debt Management or Credit Counseling Programs, which entail making monthly payments to a credit counseling agency. The agency then distributes payments to creditors on the debtor’s behalf, ideally with lower interest being applied, meaning that the debt can hopefully be cleared more quickly. Nevertheless, unlike in the case of debt settlement, the entire amount of the debt still has to be paid off, whereas the rates of completion of such programs are fairly low across the state of New York.
  • Take out a debt consolidation loan with lower interest to pay off higher-interest debts. Provided one can secure such a loan, this may be a workable option, even though it essentially means generating even more debt, strictly speaking.
  • Filing for bankruptcy, as a last resort option of debt relief. Although seemingly a daunting prospect, in certain cases bankruptcy can be the most sensible course of action for individuals who find themselves unable to meet their obligations and require relief from having to pay for some or all of their unsecured debt, whilst stopping the creditor collection process.

All options involve risks and need to be considered carefully, particularly as they are set to affect one’s credit score and overall financial health—not to mention living circumstances and disposable income. Therefore, considering all options and getting solid debt relief advice is crucial.

Considering Debt Settlement

The first issue that needs to be addressed before moving forward with the option of debt settlement is determining whether one’s debt consists of (mainly) unsecured debt, as set out above. If the answer is in the affirmative, the next step is to determine its precise nature and amount. 

Negotiating one’s debt has a higher chance of success if the majority of it is made up of credit card debt, as in such cases creditors may be more willing to accept a reduction in payment rather than risk losing the entire amount that is owed in the event the debtor decides to file for bankruptcy. Therefore, the success of the process depends—to a considerable extent—on the nature and amount of one’s debts, especially in view of the fact that, in certain instances, bankruptcy may also be an option.

Another factor that is of the essence is the reason(s) why the debtor has ended up in financial trouble. More often than not, consumers who can no longer make required payments are facing some kind of financial hardship stemming from causes such as unemployment or other loss of income, adverse changes in personal circumstances (such as divorce or separation), and unexpected medical conditions. In such cases, where financial hardship can be proven, this could be a useful negotiation tool to help achieve an effective and realistic settlement with creditors.

Lastly, before one decides to pursue debt settlement in New York, it is essential to have a realistic view of their overall financial situation and be committed to following through with the plan, bearing in mind all the risks and potential consequences involved. 

Debt Settlement Basics 

Notwithstanding the statute of limitations, creditors have better memories than debtors, as Benjamin Franklin very aptly put it—and this certainly holds true to this day. Therefore, given the current financial landscape, it is crucial to take action and consider matters carefully as soon as one starts facing mounting bills and begins struggling to meet obligations: irrespective of debt relief options that may be available, the longer one lets debt go unpaid, the greater the risk of being sued.

On the other hand, one of the ironies of successful debt settlement strategies is that creditors may be less willing to write off any part of one’s debt if payments are being made, even if they are only sporadic. In other words, if a creditor or collector has reason to believe a debtor may be able to pay the full amount owed eventually, it is unlikely they will accept less than that. Therefore, debtors are often advised to stop all minimum monthly payments before embarking on debt settlement negotiations. Obviously, it cannot be stressed strongly enough that such a move entails considerable risk: there is no guarantee that debt settlement will, indeed, lead to a reduction of one’s debt and, even if this the case, the precise percentage of the debt that may be written off cannot be predicted, let alone guaranteed. At the same time, defaulting on payments is likely to incur late fees and interest, as well as adversely affect one’s credit score.

On the positive side, typical debt settlement offers range from 10% to 50% of the amount originally owed, and can usually be arranged either in the form of one (reduced) lump-sum payment or a mutually acceptable settlement plan. 

One also has to decide whether to negotiate with creditors and/or collection agencies directly or if they prefer to employ the services of a debt settlement company or attorney specializing in debt relief. When employing the services of third parties, it is always important to consider their experience, reputation, overall approach, and success rates, as well as their related fees. Whereas the main reason many individuals decide to negotiate a debt settlement on their own is the anticipated related cost, employing the services of an expert often proves to be more effective and less expensive than one might expectprovided debtors choose wisely and depending, of course, on the specifics of each situation. 

Debt settlement for-profit companies do not work in the same way as specialized attorneys, and there is a clear choice to be made when deciding which professional to employ in situations when one requires assistance in negotiating with creditors. Debt settlement companies will typically require the making of regular payments in a special savings account (usually for 36 months or more), while they negotiate with creditors. These payments will cover both their monthly fee and the savings required for the payment of the debt. Once a substantial amount of money is set aside, they will normally contact creditors in order to negotiate the payment of a lump sum that will be less than the balance actually owed. 

Hiring a reputable debt relief attorney is an option that offers more personalized service by a skilled individual that will look into each case in more depth, and go over all available options with the client, explaining what each of them entails. Unlike debt settlement companies that essentially only sell this particular service, a trained debt relief attorney will be better placed to explore other options, such as bankruptcy, and work out the most appropriate and effective solution for each client. A lawyer can then take on negotiations on a client’s behalf directly with creditors or debt collection agencies. They can also assist with the drafting of debt settlement letters in the name of a client, thus allowing great flexibility as to the range of services one might decide to receive following an initial consultation. 

In any case, when hiring a lawyer to take on debt settlement, one is employing the services of an experienced individual trained in negotiations, whereas in the event a creditor ends up filing a lawsuit, they can also represent the client in court, with full knowledge of the case particulars.

If you are facing financial difficulties and are worried about not being able to pay your bills, if you are getting unsettling calls from creditors or debt collectors, or even if you are facing debt collection lawsuits, you should seek specialist professional debt relief advice. Our legal team here at Roemerman Law can help you explore available options and make the most of the related tools available to you.

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