With consumer debt at an all time high, more Alabama residents are seeking Consumer Credit Counseling Services and debt consolidation firms. Unfortunately, with little regulation and a lack of understanding about what these services entail, many consumers have found themselves in a bigger financial predicament by enrolling in these types of programs. The purpose of this article is to give general info about the types of debt relief services are available, as well as what laws regulate these businesses in Alabama.

(Note: this is for educational purposes only. It should not be construed as legal advice. For legal advice, please consult with an attorney licensed in Alabama.)

Types of Debt Consolidation

There are two types of debt management available for consumers who are looking to consolidate credit card debt, medical bill collections, repossessions, and other unsecured debt.

The first type is referred to as credit counseling. These organizations may enroll you in a debt management plan, which involves working directly with your creditors to reorganize your debt on a more manageable payment plan, typically lowering your interest rates and helping you get out of debt in four to five years. On top of that, they can help you manage your debt through budgeting advice and education programs. Many of these organizations are non profit, although they still charge fees unless you show a serious financial hardship.

The second type of debt consolidation is known as debt settlement. This involves negotiating with creditors to lower the amount you owe, not just the interest charges. Typically the savings from this type of program are more dramatic, but there are several downsides that should be noted, including the fact that your credit score after debt settlement will most likely be impaired. The reason for this that in a debt settlement plan the consumer stops paying their creditors and instead puts money into a separate savings account each month. Once sufficient funds have accumulated, the company will contact and negotiate with the creditor to get them to agree to accept a lump sum for less than balance in full satisfaction of the debt.

To get matched with a debt management company for a free consultation, submit a form today!

What to Watch Out for from Credit Counselors in Alabama

In Alabama the law that applies to the debt consolidation industry is from 1961. The laws regulating the administration of debt management in Alabama is the Sale of Check law, which is Chapter 7 of Title 8, Commercial Law & Consumer Protection. The law governs any company that is in the business of “selling, issuing, or otherwise dispensing checks or receiving money as agent for obligors for the purpose of paying such obligors’ bills, invoices, or accounts.”

Knowing your rights under this law can protect you from using a debt service that is not legitimate. According to the Sale of Check law, all credit counseling service providers must include the following provisions in their contract with clients:

1. Prohibition against the commingling of funds; (this is a fancy way of saying the company cannot mix its own funds with yours)
2. Escrow provisions;
3. Conflict of interest policies; (this may relate to “Fair Share” funds they receive. “Fair Share” is a kick-back that credit counselors receive from creditors for providing debt management plans)
4. Payment provisions for debtors;
5. A provision for a payment cycle of not longer than 30 days;
6. Monthly statements to be delivered to debtor;
7. All fees stated clearly;
8. Duration of program to completion (not to exceed 60 months);
9. Disclosures relating to any money derived from other sources based on services provided to customers/clients.

Exemptions

It should be noted that the following entities are not considered debt counselors under Alabama law:

-banks, savings and loans, etc.
-government entities, federal and state

To learn more about the registration requirements for debt management services in Alabama, follow this link: Check Sales Law.

Having Problems

If you’ve tried resolving your issue with your debt consolidation provider, but haven’t had any luck, then you can file a complaint here:

File a Complaint

Other Resources

Filing Bankruptcy in Alabama

Bankruptcy Laws in Alabama

Debt Collection in Alabama