The “Debt Relief Act” Doesn’t Exist!

Have you seen any of those ads for “President Obama’s Debt Relief Act (Plan, Program, etc)”? If you have one or more credit cards you probably have. Maybe you’ve even gotten one of those recorded phone messages (complete with an announced deadline) telling you that you need to “act now”.

If you have, and if you’ve ever given it a momentary thought, don’t. It’s a marketing hoax, nothing more.

The debt settlement companies are using the hoax to make it appear as if they’re working within some federal government program. They even have program parameters—loosely, “if you owe over $10,000 in credit card debt you can have 50% or more of it legally canceled”. It’s convincing, but there’s no federal program. It’s a simple debt settlement service, and the program parameters are those of the debt settlement companies.

Perhaps they’re trying to piggybank on the Mortgage Forgiveness Debt Relief Act and Debt Cancellation, but even that isn’t a formal debt forgiveness program, but rather a favorable treatment of debt forgiveness income by the IRS. That only applies to mortgage debt, not credit cards.

What should you do if you actually do need some sort of debt relief?

Debt settlement organizations

Most people are either hesitant or downright fearful of even attempting to negotiate a debt settlement with their creditors, and if you are there are organizations that will handle it for you. If you do, understand that there are two types of debt settlement companies, for-profit, and non-profit. You’ll want to go with the non-profits.

These days, there is no shortage of for-profit debt settlement companies, and there are good reasons for that. Not only are more people struggling with debt than ever before, but debt settlement is a profitable business! That’s why for-profit debt settlement companies spend so much money on advertising and by promoting the bogus Debt Relief Act.

They’ll work to settle your debts for sure, but they add their fee onto the amount of debt you’re paying. Typically, that fee will be the first “debt” that settled through your plan.

Non-profits are the better way to go. Many of them have been around for many years, working out debt settlements before it was profitable to do so, and the fees they do charge are minimal. To find a non-profit debt management agency in your area, simply search the web with “non-profit debt management services”, then check them out with the local chapter of the Better Business Bureau.

Working out a debt settlement directly with your creditors

If you don’t find an agency you feel that you can trust (and there’s no small number of those) you can work out your own debt settlement. A creditor is under no obligation—legal or otherwise—to work out a settlement with you. But most will cooperate since they will most likely get nothing if you decide to file for bankruptcy.

If you do work out your own settlement try doing the following:

• Check out the Fair Debt Collections Practices Act (FDCPA)provided by the Federal Trade Commission and learn your legal rights. Knowledge is power, and this is a good place to get it.
• Before agreeing to any debt settlement arrangement with any creditor, first get a copy of the agreement in writing, Verbal agreements don’t count. If it isn’t in writing, it isn’t enforceable!
• There are no hard and fast rules—you can negotiate an interest rate freeze, a principal reduction, or both.
• The best results come when you have some cash to pay toward a debt—i.e., if you have a $10,000 debt, ask them to cut the balance to $5,000 and you’ll give them $2,000 up front, and the balance over, say 12 months.
• Yes, your credit will be negatively affected by the settlement. There is no way around this—anything less than full compliance with the original terms of a loan will represent derogatory information that will appear on your credit report and affect your credit score.

While you’re negotiating your settlement, understand that what you are doing is creating an informal debt settlement plan—that is to say this is art, not science. The only fully legal way to settle debts—complete with proscribed procedures and court adjudication—is either a Chapter 7 or Chapter 13 Bankruptcy. As stated at the beginning, there is no “Debt Relief Act” or anything similar. Good luck!