You can find some of the most common frequently asked debt relief questions about debt settlement and debt lawsuits here. If you don’t find the answer to your own question or would like to speak to us about your unique situation, please give us a call at 858-217-5051 or contact us using our contact form. We’re a debt relief law firm in San Diego, serving all of Southern California. We offer debt help to our clients by aggressively fighting your creditor to greatly reduce your debt or wiping it out altogether.

Debt Settlement Frequently Asked Questions

Find FAQ’s on Debt Settlement for Credit Card Debt, Student Loan Debt, Medical Debt, Second Mortgage Debt, Payday Loans and Small Business Debt.

What is Debt Settlement?

Through debt settlement we negotiate down your debt to a reduced amount that you pay off in a lump sum or over a short-term payment plan. Debt settlement is a good choice if you have more debt than you can pay off in a 2-3 year period or if you have experienced a significant financial hardship that has caused you to fall behind on your monthly payments.

What is the difference between a debt settlement and a debt consolidation?

In a consolidation, all of your debts are added up into one large lump sum. You will have to pay back the full amount of your debt, but at a reduced interest rate. With a debt settlement, you put aside money every month. That money is put in a savings account so that we may offer your creditor a lump sum payment. We negotiate with your creditor to significantly lower the amount you pay back on the total debt you owe.

Will debt settlement hurt my credit?

Yes, at first. In order to settle your debts, you must make the difficult decision to stop paying your creditors. Non-payment of your debts negatively impacts your credit score and your credit report will show missed payments for 6 months until the debt is charged off. These negative marks remain on your credit until you settle and pay off the debt. The good news, credit experts estimate that your score will rebound in as little as 12 months after completing a debt settlement.

What does it mean to have a charge-off debt?

A charge-off means the bank determined that the debt due by a consumer is unlikely to be collected. Federal regulations require creditors to charge-off an account after 180 days of delinquency and the banks get tax exemptions for the debt. Creditors view charge-offs as part of the cost of doing business with consumers. A charge-off does not mean you no longer owe the debt. The debt is still legally valid and subject to collection and subject to state laws that limit the amount of time that a creditor can legally collect on the debt. California limits this to four years. The method of collection includes collections either internally or through a third party collection agency or a lawsuit.

Will I be taxed by the IRS on the forgiven debt?

The first rule in tax law seems to be that everything is considered income. You just have to figure out a way to exclude it. This holds true for debt settlement. The amount of debt you do not have to pay back, the forgiven debt, is considered income by the IRS. You will receive a Form 1099-C in the year that your debt is settled. That does not mean that you automatically have to include this as income in the year the debt is forgiven. The IRS has an insolvency exception. Insolvency happens when your debt liabilities exceed the fair market value of your assets. The IRS explains the insolvency exclusion in Publication 908: “You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. Determine your liabilities and the fair market value of your assets immediately before the cancellation of your debt to determine whether or not you are insolvent and the amount by which you are insolvent.” Clear as mud? Here’s a simple solution. Call your tax professional for advice and guidance. You may be pleasantly surprised to hear that you qualify for insolvency under the Tax Code with no further tax liability.

Is debt settlement a better choice than a bankruptcy?

No right answer proves correct for every situation. That’s why you can’t believe everything you read and you must consider the source. Many self-serving companies will tell you that whatever service they are trying to sell you is the only option. The truth is, you have options each with pros and cons. For some, a Chapter 7 Bankruptcy (your debts are completely eliminated) is the best option. In other cases, a Chapter 13 Bankruptcy allows you to eliminate your debts for a smaller percentage than you owe and even allows you to strip a lien from your property if the fair market value is less than what is owed. For others, debt settlement is the best option, especially if you can’t qualify for a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy results in you paying 40% or more back to your unsecured creditors. Seeking the advice of an attorney is always recommended since they will give you an honest answer to these difficult questions, even if it means referring you out to another attorney and losing out on a fee.

Can I settle my debts on my own?

Yes. Debt settlement contains no “secret sauce” formula. If you owe a small amount to one or two creditors you could talk to them to settle your accounts yourself. However, if you owe significantly more money, you should consult an experienced debt settlement attorney. It’s often difficult to determine what defines a good settlement. Should you disclose your financials? Is the offer you receive the best you’re going to get? What makes this a valid offer? Does it need to be in writing? Is the written offer valid and binding on all parties? Hiring an experienced and knowledgeable debt settlement attorney serves your best interest. We know the answers to these difficult questions. Hiring a debt settlement attorney relieves you of the stress of dealing with this situation on your own. Imagine the relief you will feel knowing that an experienced debt settlement attorney will handle all of the negotiations, finalize all of the settlements and create a plan to fund these settlements.

What happens if I get sued?

The non-payment of your debts as they become due is considered a breach of contract. Your creditors can sue you under this theory for your failure to make payments on your credit card debt. If you are with a debt settlement company, you’re likely to be wished good luck on your way out of their office because debt settlement companies cannot step in to represent you in a lawsuit. A licensed attorney can. Seeking the assistance of an experienced attorney for your debt settlement gives you the added protection of having an attorney ready to step in to assist you in the event that you find yourself as a Defendant in a credit card lawsuit.

Can creditors continue to call me once I start a debt settlement?

No. In general, creditors are permitted to contact debtors once the debtor goes delinquent. Creditors use these calls to obtain information they can later use against you to collect the debt. The advantage of proceeding with an experienced debt settlement attorney is that these calls will stop. As soon as we begin representing you, your creditors are placed on notice and not permitted to contact you. If the creditor chooses to ignore this notice and continues to contact the debtor, they violate state and federal debt collection practices laws and could face monetary penalties.

Why would a creditor agree to a settlement?

It’s no big secret that banks are in the business of making money. Especially when they get a consumer stuck in the cycle of paying the minimum monthly payment, resulting in a small principal pay down. But, once you stop paying the minimum, they lose their income and debt settlement allows them a way out, since the banks can now claim your account as a loss. They then use the losses to offset other profits and reap the benefit of creative bookkeeping.

Is debt settlement right for me?

Good question. If you are asking yourself this question, you should be consulting with an attorney. If you face $10,000 or more in unsecured credit card debt, medical bills, HELOCs, payday loans, personal loans or private student loans, you should definitely consider the possibility of debt settlement as an option, even if you are researching other debt-relief options such as bankruptcy or debt consolidation. Most consumers go through this process when deciding on a major purchase. You should do the same when making a decision regarding your financial future.

How do I choose the right firm to handle my debt settlement?

First and foremost, make sure you choose a law firm. Some debt settlement companies claim to be attorneys but only utilize an attorney as a front to meet state and federal guidelines. You should make sure the attorney handles all aspects of the debt negotiation process, not a back office support staff. We also recommend that you check out the attorney with the State Bar of California at http://members.calbar.ca.gov/fal/MemberSearch/QuickSearch. There you can see the attorney’s length of time practicing, as well as any disciplinary actions taken against that attorney. If you find yourself as a Defendant in a creditor lawsuit, do you want an attorney fresh out of law school handling your file? Make sure you are working with an experienced attorney. Ask the attorney about their experience, specifically in handling creditor lawsuits, not the combined experience of the firm’s attorneys, but the attorney actually responsible for handling your legal matter, the one that will be standing next to you at trial.

Student Loan Debt Frequently Asked Questions

What is the difference between private and federal student loans?

A private student loan is money borrowed from a private lender or bank, such as Wells Fargo, Chase, Bank of America and many others. A Federal student loan is money borrowed from the federal government via the Department of Education.

How do I know if I have a private or a federal student loan?

Many people have a combination of both private and federal loans. It is very common for people to take out more than one loan to complete college. The National Student Loan Data System is a database with a list of all federal student loans. If your loan is listed here, then it’s a federal student loan. If it’s not, then the odds are good it’s a private student loan. You can always call me for a free consultation and I can identify what type of loans you have.

When do I have to start paying back my student loans?

It depends on what kind of loan you take out and the agreement you reach with your loan servicer.

PRIVATE STUDENT LOANS – Private loans are unsubsidized and, like a credit card, you usually have to begin making monthly payments as soon as you begin receiving payments from the loan.

FEDERAL STUDENT LOANS – If you took out a federal loan, you usually do not have to begin paying back your loan until 6 months after graduation. There are exceptions if you are not a full-time student, in which case, you might have to start paying back your loans sooner. Federal student loans offer a variety of repayment plans to fit your particular situation.

What if I can’t afford to pay back my student loans?

There are many variables that can contribute to not being able to pay back a student loan, such as the inability to find a job and sickness.

PRIVATE STUDENT LOANS – If you have a private student loan, most are subject to variable interest rates. This can throw a wrench into a carefully planned budget if your rates go up. It’s important to establish a relationship with your loan servicer, so that if payment issues arise, you can call them and try to work out a plan. However, if you simply cannot pay your private student loans back, then you will go into “default”. You are considered in default on a private student loan when you miss your first payment. And then after 180 days, your account is considered “charged off”. This means the lender does not believe they can collect the loan from you anymore. This doesn’t mean you don’t still have to pay back the loan. You are still legally responsible for paying back the loan. At this point, your lender will most likely start sending debt collectors after you to recover your student loan debt. If that fails, you will probably be sued in a debt collection lawsuit.

FEDERAL STUDENT LOANS – If you have a federal student loan, your best bet is to see if you can get into a student loan repayment plan, such as “Pay As You Earn”, “Income-Contingent” and “Income-Based Repayment” plans. You can go to the Federal Student Aid website to get started on applying on your own. Or you can have a student loan lawyer help you navigate through the system. Be aware of student loan debt relief companies who promise to get you a great deal with the federal government (see section below about student loan scams). If you have a federal loan, you also might qualify for forbearance or a deferment if you can explain a valid reason why you can’t pay the formerly agreed upon loan payment amount. Federal student loans are considered in default when a payment has not been made in 270 days. Much like private student loans, if you default on your loan, the federal government will come after you most likely with debt collectors and potentially seek to garnish your wages or intercept your federal tax refund.

What happens if I default on my student loans?

There is a very real possibility your wages will be garnished or your bank account levied if you go into default for a private or federal student loan. You can contact a student loan lawyer to help recover those funds, and then you need to make a plan for getting your student loans out of default.

PRIVATE STUDENT LOANS – If you default on a private student loan, then you will most likely be contacted by debt collectors. If you ignore the debt collectors, then your lender will most likely sue you to collect the money they are owed. This is a good time to negotiate a debt settlement (see below for more info) with your lender.

FEDERAL STUDENT LOANS – If you default on a federal student loan, you can try to get out of default with a loan rehabilitation. You can get into a loan rehab yourself or hire a student loan lawyer to walk you through it. A loan rehabilitation is a payment plan based on what you can afford to get you back on track and in good standing. If you make 9 reduced payments during a 10-month time period, then your loan will no longer be in default. The payment amount is agreed to by your loan servicer. I often help clients get payments for as low as $5 per month. Be cautious when making an arrangement with a debt collector representing the federal government. There are cases where they try to collect payments that you can’t afford, and this is against the law. Once you have completed a loan rehabilitation, your loan is no longer in default, your wages won’t be garnished, the negative marks will be removed from your credit score, you don’t have to worry about bank levies and you can take advantage of the repayment plans offered by the Department of Education, such as Income-Based repayment plans.

What is a student loan debt settlement?

A debt settlement is a negotiation between the borrower and the lender that the borrower will paid back an often greatly reduced amount of the original amount due in a lump sum or over a period of time. Lenders often agree to settlements because they can collect a portion of the money owed without having to fight costly court battles. See my student loan success stories (link this to LASLL success story page) to see what kind of results can be reached with a private student loan debt settlement.

Can debt settlements be reached for private and federal student loans?

The answer is “yes” for most private federal student loans. The answer is “very rarely” for federal student loans and only after your loan is in default. Settlements for federal student loans usually only eliminate the debt collection costs incurred plus a reduction of the principal by 10-15%. Also, the settlement payment is usually due for federal student loans within 90 days or spread out over those 90 days. Loan rehabilitations are usually your best option to get federal loans out of default.

What happens if I ignore a student loan lawsuit?

If you ignore a student loan lawsuit, then a default judgement will be entered against you. Basically, you are considered guilty if you take no recourse to fight the lawsuit. Your lender will probably come after you to collect the student loan by garnishing your wages and/or taking money out of your bank account with a lien. Debt collectors will most likely try to contact you at work and call on friends and family to locate you. And at this point, they’re not just trying to collect the student loan debt you owe, but also attorney fees for the lawsuit they have now filed against you. You should never ignore a student loan lawsuit.

Why am I being sued by someone else and not the lender I took out my loan with?

Oftentimes, your lender will sell your loan to an entity such as National Collegiate Student Loan Trust, which is an entity that buys student loans from lenders such as Charter One Banks, Wells Fargo, and Bank of America. Navient is another example. They collect on approximately $300 billion in student loan debt from 12 million borrowers. Just because your loan was sold to a different entity does not mean that you don’t still owe the debt. You owe the exact same amount to the new owner of your debt as you did to the old owner. The large entities like National Collegiate Student Loan Debt and Navient have vast resource of attorneys at their fingertips that do nothing all day, every day but sue student loan borrowers in default. Make sure you have a successful, experienced student loan lawyer to fight back. Whether you are being sued by the federal government or a private entity, you need solid legal recourse to fight back.

Can I get my student loan debt lowered if I am not in default?

PRIVATE STUDENT LOANS – It isn’t likely to get your student loan debt lowered if you are current in you payments on a private student loan. We have had great successes in negotiation of private student loans, but only for loans that are in default in payment.

FEDERAL STUDENT LOANS – Yes, if you qualify for a repayment plan with the Department of Education.

What is Student Loan Consolidation?

Student loan consolidation is combining all of your loans into a new loan, usually at a lower interest rate. You will end up paying back the same amount of the original loan you took out, but the interest rate might be lower.

How do I qualify for student loan forgiveness?

Student loan forgiveness only applies to federal student loans. You can only apply for student loan forgiveness if you are current on making your student loan payments, referred to as “qualified loan”. Student loan forgiveness does not mean your student loan will simply be wiped away. The first step is to consolidate your Federal qualified loans if you have more than one of them. If you work in public service, you may qualify for the Public Service Loan Forgiveness (PSLF) Program. Under this plan you must work in public service and have made 120 qualifying monthly payments under one of the above-mentioned repayment plans while working full time for a qualifying employer. At the time this blog was written, the Dept. of Education issued the following “alert”:

The Consolidated Appropriations Act, 2018 provided limited, additional conditions under which a borrower may become eligible for loan forgiveness if some or all of the payments made by the borrower do not qualify under current requirements for Public Service Loan Forgiveness (PSLF). The U.S. Department of Education is assessing the newly enacted law and will explain the new forgiveness conditions to customers on this page as soon as more details are available. We encourage you to check back periodically.

If you don’t work in public service, you can also apply for forgiveness via one of the U.S. Department of Education’s student loan repayment programs, such as:

Standard Repayment Plan
Graduated Repayment Plan
Extended Repayment Plan
Income Contingent Plan
Income-Based Repayment Plan
Pay as You Earn (PAYE)
Revised Pay As You Earn
Income-Sensitive Repayment Plan

Can I get my student loans dismissed in bankruptcy?

This is a hot topic in the student loan legal world that could change in the future. But currently, the short answer is not in most cases. If you declare bankruptcy, you will have temporary relief from debt collectors contacting you. However, once your bankruptcy is complete, the debt collectors will start up again.

How do I know if I should hire a student loan lawyer?

If you have reached a point where you can no longer afford your student loan payments, if your student loan is in default and/or you are being sued – then it’s time to consult a student loan lawyer. The lenders who are suing you usually have huge teams of attorneys who do nothing but sue borrowers in default. You can try to fight back against them on your own, but your chances for success are far greater if you have an experienced student loan lawyer representing you.

If I am already in debt, how can I afford a student loan lawyer?

As my clients can tell you, I am known for not charging outrageous fees. And the savings I offer my clients far out way my attorney fees. If you go to a student loan attorney, make sure you get a free consultation. In that consultation, the attorney should do a thorough evaluation of your situation and then suggest a path to get you out of your student loan predicament. The plan should be fair and contingent on what you can afford based on your income and expenses. In most cases, I end up saving my clients far more money than if they did not seek me help.

How do I know if I am getting scammed when trying to find student loan debt help?

Beware of student loan debt relief “companies” as opposed to law firms. Debt relief companies are often in the news for scamming consumers who are already in vulnerable situations and who don’t know where to turn to for help. Do not go to anyone who asks for upfront fees for advice. Anyone you go to for help should offer a free consultation to listen to your unique situation and offer options for debt relief. Also, be cautious if someone promises to “Eliminate Debt”, “Cancel Debt” or promises “Immediate Loan Forgiveness”. Those promises are simply false. If someone says they can negotiate a settlement or put you on a payment plan for federal loans, this is probably a scam – considering that payment rates and plans are set by the federal government and can’t be negotiated.

Why should I trust the Gamez Law Firm with my student loan debt problems?

Many attorneys call themselves student loan lawyers, but have little to no experience in handling student loans. I have been at the forefront of the student loan debt crisis. I have built relationships with the biggest debt collection law firms in the country, which makes negotiating settlements that much easier for me. I take great pride in negotiating student loan workouts for my clients. It’s quite common for clients to tell me that the results we achieve are life changing for them. This is our goal, to give our clients a life free of debt.

Debt Lawsuit Defense Frequently Asked Questions

I received a “Summons and Complaint”. What is this and what does it mean?

The first notice you receive about a debt collection lawsuit is likely to be the “Summons and Complaint,” which outlines the claims against you. The “Summons” basically is ordering you to appear in court for something and the “Complaint” is the actual lawsuit. It’s essential that you file a response to this document with the court. You want to avoid having a judgment against you automatically, which is known as a default judgment.

What will a debt relief attorney do with my lawsuit?

Your debt relief attorney will first ask for proof of your debt. The plaintiff (attorney for the creditor) has to prove the allegations against you in order to win the case, so your debt relief attorney should request that your creditor provide evidence of the claims. The plaintiff may not have the necessary proof, which may open the door for a debt settlement before the case goes to trial.

Is there a statute of limitations for being sued?

Your debt relief attorney will help you determine whether the lawsuit filed against you complies with the Statute of Limitations. A creditor does not have an unlimited amount of time to initiate a lawsuit to collect a debt. In California, they must file the lawsuit within four years from the date the debt became due. A debt collection lawsuit can be defended by showing that the plaintiff did not file the lawsuit within that amount of time.

Can my lawsuit be dismissed for other reasons?

Your debt relief attorney can determine if there was improper service in the delivery of your lawsuit. There are certain requirements that the plaintiff must meet in terms of notifying you of the lawsuit. In general, you must be served with the Summons and Complaint by a police officer or other official at the place of your normal residence. If you were not, you may have a defense based on improper service.

Do I have any other recourse against the lawsuit filed against me?

Your debt relief attorney may be able to fight the debt collection lawsuit with a counterclaim. You may have a claim against the plaintiff debt collector if they’ve acted in violation of the law, especially the Fair Debt Collection Practices Act. The FDCPA allows you to recover attorneys’ fees and costs if the plaintiff does not comply with its provisions.

Can I represent myself in a debt collection lawsuit?

Your odds of getting out of your lawsuit with success are greatly increased with the help of an attorney. An experienced debt attorney knows the law regarding debt collection lawsuits, can protect your legal rights, can identify if there is grounds for lawsuit dismissal and an help you repair your credit rating by making sure credit reporting agencies list accurate information about your financial dealings.

Is it possible to avoid going to trial altogether?

Yes, Your debt relief attorney can try to reach a debt settlement with the plaintiff attorney before going to trial. A debt settlement of your lawsuit is basically an agreement that you enter into with the plaintiff attorney. You agree to pay a certain amount of your debt under terms that your debt relief attorney will negotiate with the creditor. In most cases, this amount will be cents on the dollar with respect to the total amount you owe. In exchange for the lump sum payment, or series of installments over a period of time, the creditor will agree to dismiss the lawsuit against you and the case will be over.

Why would my student loan debt collector be open to accepting a debt lawsuit settlement?

Usually, the attorney will be open to a debt settlement because ending the case reduces the expenses that the student loan creditor will pay their attorneys to pursue the matter against you.

Will a settlement impact my credit rating?

The debt settlement may still be reflected upon your credit report unless your debt relief attorney negotiates to have your creditor file the settlement with the credit reporting agencies. The court case doesn’t automatically disappear from your credit history unless the creditor takes action. Your credit rating may drop due to the settlement, as not paying your debt in full is considered negative history. However, your score is impacted less than letting the debt remain on your report or filing bankruptcy. And the good news is that credit experts estimate that your score will rebound in as little as 12 months after completing a debt settlement.

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