Editor's choice: National Debt Relief
- No cancellation fees
- Low minimum to enroll
- No upfront fees
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Virginia currently doesn't have many regulations specifically for debt relief companies — though a recently passed law will change that on July 1, 2021 when it goes into effect. If you're considering a debt relief service, make sure you understand what you're signing up for.
Use this table to compare debt relief companies available to Virginia residents.
Credit counseling companies are required to have a license to operate in Virginia. Debt settlement companies, however, weren't regulated in Virginia until April 2020. A new law that requires debt settlement companies to have a license will go into effect on July 1, 2021. Other regulations that will go into effect on the same date include:
Debt settlement companies can charge fees in two ways. They can charge up to 20% of enrolled debt, or they can charge a fee of up to 30% of the difference between the enrolled debt at the time of settlement and the amount you pay to your creditors. All other fees are prohibited.
Let's take a look at an example. Say you have $30,000 enrolled at the time the company settles your debt. A company can charge up to 20% of that amount, which would be $6,000. But if it negotiates the debt down to $17,000, it can charge up to 30% of the difference between $30,000 and $17,000 — which is equal to $13,000. This gives you a fee of up to $3,900.
Debt settlement companies can't charge fees upfront. They must wait until a company has altered the terms of at least one debt enrolled in the program and the customer has made at least one payment to their creditors under the newly negotiated terms.
In other words, companies don't need to settle the debt to charge a fee, but they must at least successfully change the terms of the agreement with your creditor.
Before you sign up for debt settlement, the company must disclose the following information in writing:
It also must include a statement explaining the risks. These include the fact that debt settlement will likely hurt your credit, can result in having your debt sent to collections or a lawsuit. And that it can increase how much you owe due to unpaid fees and interest.
Debt settlement usually involves opening a trust account, where you make monthly deposits. It's also what the company uses to withdraw payment to creditors and service fees.
Under the new Virginia law, these accounts must be held at an FDIC-insured financial institution and cannot be owned or compensated by the debt settlement company. The customer must be able to withdraw from the account without penalty and have access to all funds in the account, minus the debt settlement fee.
Companies are required to give customers a written agreement that contains:
These new regulations only apply to companies offering debt settlement, or debt negotiation, which involves negotiating down your balance in exchange for a one-time payment. Other types of debt relief companies that just provide debt management plans or credit counseling are exempt.
There are several options available to Virginia residents struggling with debt.
If you're considering credit counseling or debt management, make sure the credit counseling agency is licensed in Virginia before you sign up. You can do this by searching Virginia's list of licensed credit counseling agencies.
With debt relief, you'll have to do a little more research to make sure a company isn't a scam until July 2021.
The average Virginia resident is struggling with debt. The median DTI for Virginia residents in 2019 was 1.8, according to the Federal Reserve. That means that Virginians owe 1.8 times more each month than they earn.
Virginians owed $66,140 per capita at the end of 2019, according to another Federal Reserve study. Here's how that broke down:
Finding a legitimate debt relief company in Virginia will be a lot easier once new debt settlement regulations go into effect on July 1, 2021. While credit counseling agencies are legally required to be licensed, you'll have to vet debt settlement companies yourself.
Read about our top picks for debt relief providers to learn more about your options.
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