4 Important Debt Settlement Laws that Can Benefit You

When you are going through the process of eliminating debts, you should be aware of debt settlement laws to properly argue for your best interest. While most borrowers realize there are laws binding them to a contract, few borrowers realize there are legal protections in place that can excuse them from a contract. These laws are essential in helping you settle debt for the lowest possible sums.

#1 Statute of Limitations on Debt

The first thing to realize is you do not have to pay debt that has gone past its statute of limitations. This mostly applies to credit card debt, but many types of utility bill debt and medical debt also have limits. If your debt is very old, your account was closed or other items passed, you may realize a collections agency no longer has a legal right to ask you to pay. Most states practice a statute of limitations between three to seven years. If your credit card has no activity at all in this period of time, you closed the card, or other actions, you should check to see if the agency has a legal right to hold you accountable.

#2 Fair Debt Collections Act

The Fair Debt Collections Act specifically discusses the types of actions a lender can take in order to attempt to collect on your debt.When you are contacted by a collections agent, you may immediately begin attempting to settle or pay a debt to prevent harm to your credit. However, many times, the agent has no legal right to attempt to collect. The creditor may have even written off the debt. As a result, if you ask for the debt to be validated and the collections agent cannot validate the debt, you will be completely relieved of duty to pay.

#3 Mortgage Forgiveness Debt Relief Act

Settling debt can bring tax implications. Taking a loan is essential gaining a new source of income. Since you pay the loan back, you do not have to pay taxes on the income. This changes when the debt is forgiven or settled. You may have to count the forgiven sum as income and pay taxes. In 2007, the Mortgage Forgiveness Debt Relief Act was established to help those settling mortgage debt. If your home goes to foreclosure and is sold for an amount too small to cover the remainder of the mortgage, you may have to negotiate a settlement for the rest of the debt. The portion of debt that is forgiven will not be taxed if this occurred between 2007 and 2012.

#4 Bankruptcy Laws

Settlement is preferable to bankruptcy in most cases. However, if you cannot meet your obligations after settlement, you will be back where you started. It may be best to speak with a bankruptcy attorney first to understand your options. Chapter 13 bankruptcy can reorganize and refinance your debts without forcing you to liquidate assets. Chapter 7 uses liquidation, but this is still a practical option for a number of borrowers who will not see relief with settlement.


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