05/02/2013 05:47 pm ET Updated Dec 06, 2017

A Law Firm is Suggesting I Have to Hire Them to Settle My Debt.


"Dear Steve,

I received settlement offers from my creditors. How do I ensure that they do not sell my account to another party for collections after receiving the settlement?

I was told by a debt counselor working with a local law firm that I could settle my accounts on my own, but creditors have been known to then sell the account and another firm then goes after you to get the remainder.

I was told by this debt counselor that with their service that when they take over and pay the settlements it would be illegal. This is a reputable law firm that is rated an A+ with BBB. Two of my accounts were turned over to collections for settlements.

I am able to pay all of my settlement offers with a home equity loan from my bank and once I do, I want to make sure that I am free and clear.

Can creditors agree to a settlement, then once they receive it sell the account to someone else to continue to collect? If so, how can I ensure that this will not happen?

If the account was turned over to a third party such as a law office or collection agency, can the creditor still do this after settlement has been agreed upon?



Dear Sherrie,

Well what the debt counselor told you is a load of misinformation. (I so wanted to use a different word.)

It is really a very simple issue. The key is documentation and retention.

People run into trouble because they either lost the documentation on the settled debt or they never got the offer and proof of acceptance in writing.

When you settle a debt you will want to make sure the creditor has put the offer in writing and states the settlement payment is for the full satisfaction of the outstanding debt. I would suggest you make sure this letter clearly identifies the account in question by original creditor, account number and balance.

Do not make a settlement payment until you get this offer in your hand. And when you do make your payment, make sure you have some documentation to show the funds were received and cash by the creditor.

Next, attach the proof of payment to the settlement letter and keep that documentation in whatever safe place you keep your other important papers. Never throw it away.

I have seen instances of creditors coming back years later and saying there never was such an agreement but all of those instances were dealt with swiftly when the documentation and proof was provided.

It's only those that never kept the proof that had problems later, in my experience.

If an account is with collections, you will want to make sure the settlement letter they provide is from the original creditor or provides some statement the original creditor has agreed to the settlement. I have seen some cases where a collection company said they would settle and then an original creditor later said they did not have the authority to make that offer. However, with the documentation in hand this is much less of an issue.

These days it can be tough to figure out if the collection company is acting as an agent of the original creditor or bought the bad debt and is now the owner.

Depending on the timing of things it is possible that an account could be turned over to an outside party if it was in the works at the time the settlement and payment came together. Much of this is just an administrative snafu that can be easily cleared up.

In my experience, if you have the offer and proof of payment then you will have little to worry about except for some administrative issue that can be easily solved.

The part that gets sticky is when you get a collections company that says they will accept a payment of $X but does not state it is for the full satisfaction of the debt. In that case I've seen some go back to collect the balance.

Don't forget, whatever the creditor or collector tells you over the phone is worthless. Make sure you get any settlement in writing and if it all looks good, make the payment promptly.

Finally, get familiar with the pros and cons of debt settlement before you jump in with both feet.

Please post your responses and follow-up messages to me on this in the comments section below.

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