Feeling trapped by a debt relief provider? Here’s what to do

Debt relief can sound incredibly positive when you’re finances are underwater and you can’t see your way to paying off your debt. Sometimes it can be so appealing, in fact, you wind up working with a company that doesn’t have your best interests in mind. If you’ve signed on for help from a debt relief provider and you’d like to unenroll, here’s how you can go about doing that.

Getting out of this situation — especially if you’ve already paid that company to help you — can be disheartening and challenging, but the good news is that it can be done. Let’s start with debt settlement companies, also referred to as “debt relief”, “debt resolution” or “debt adjusting” companies.

Why you may have problems with your debt settlement relief provider

In general, you contract with these companies to contact your creditors and negotiate a payment plan or reduction of your debts for a fee, which is typically based on a percentage of your debt.

Sometimes it doesn’t go as you may have planned, and could end up costing you more than you’d anticipated. That’s because many of these companies negotiate how your debt is paid down based on an agreement that reaps the greatest financial benefit for them, not you.

Other factors can come into play as well:

1. Your creditors may not agree to settle. If you’ve already paid a fee to your debt relief provider and your creditors won’t settle for less than what is owed, you may be out of luck — and also money. Chances are, you won’t get your fees for services back.
2. You could end up with even more debt if you stop making payments on your debts as required by most debt settlement companies. You could wind up facing collection fees. Also keep in mind that you could owe taxes on any forgiven debt the company negotiates.
3. Your credit can be negatively impacted because of the delinquent status of your debt accounts.

How to get out of a debt settlement contract

Fortunately, if you find yourself unhappy with your debt settlement company, it’s very likely that you can withdraw from the contract. It can be complicated if you’ve already paid them or if you’ve given them permission to draft fees from your bank account. If that’s the case, it’s a good idea to contact your bank. You may want to close the account, which would likely result in your contract being terminated for non-payment. That can be an easy way to make the debt settlement company go away.

While you can get out of the payments to the debt settlement relief provider, keep in mind you’ll still owe your original debts and will need to figure out a way to pay it off. Read this primer to fully understand what to consider if you want to unenroll from your debt settlement company. 

If you’re sure you want to unenroll, you have a few options for doing so: 

• Contact your creditors directly to see if they will negotiate a settlement or payment plan with you
• Turn to a nonprofit credit counseling service or look into a debt management plan (DMP)
• Talk to a bankruptcy attorney about bankruptcy relief

Whichever of these choices you make, Resolve can help. There are free resources through Resolve that can prepare you for negotiating with your creditors and debt collectors. Also, should you run into a situation where you would prefer a professional handle things,the negotiators in the Resolve Network charge rates that are fair and substantially less than traditional debt settlement companies. For example, while a traditional company charges 20–25% of your total debt, service providers in the Resolve Network charge 15% of what you save.

Related article: How to negotiate credit card debt settlement by yourself

How to get out of your debt management plan

Similar to how you would typically have money being drafted out of your bank account for settlement, a debt management plan (DMP) payment is also drafted out of your account. And both can be cancelled. 

You can call your bank to make sure this payment is stopped, but talking to the nonprofit credit counseling agency administering your DMP should also suffice.

Here too, you will want to have an answer for the payments the debt relief provider is no longer making. This could mean making the payments to your credit cards yourself, and often at the higher interest rates you were paying before you enrolled in the DMP. 

You may have to stop paying your monthly DMP payments due to major changes to your income that now make debt settlement or bankruptcy a better alternative.

how to stop your bankruptcy before completing it

Most of us that file for chapter 7 bankruptcy will complete the process. It only takes a few months to get through, and we are highly motivated to get to the other side with a fresh start. 

Unlike dismissing your chapter 13 bankruptcy, chapter 7 can be difficult to stop once started.

Related article: Bankruptcy: The differences between Chapter 7 & Chapter 13

Chapter 7 bankruptcy allows your unsecured debts to be discharged. If something changes with your qualification for chapter 7 such that you try to dismiss your bankruptcy, the court will typically want you to have a plan for tackling the accounts you would likely have already stopped paying and that are now in collections.

One of the reasons you would not want to continue with your chapter 7 is that you learn you will have to sell nonexempt assets, such as your home.

Getting your chapter 13 dismissed is fairly common. Most chapter 13 bankruptcy filings, which are a structured repayment plan, are not completed. This is largely due to the inability to continue to make the required monthly payment to the court.

Many of us will be able to convert a chapter 13 into a chapter 7 filing, if we qualify.

Related article: How often can you file bankruptcy?

You may find you have to attempt to settle debts with creditors that were in your chapter 13 repayment plan, but only after the bankruptcy is formally dismissed.