How to Settle Your Debts in Maine

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Written by Upsolve Team.  
Updated March 18, 2020

Summary

This guide focuses on the steps you’ll need to take to accomplish a successful debt settlement. The remainder of the guide looks at other debt-relief options that may be a better fit for your financial situation, depending on your circumstances.

Mainers from Portland to Bar Harbor to the Maine North Woods of Aroostook County are grappling with financial distress every day. Debt and other financial challenges affect people from all walks of life. You could be alobster fisherman in Stonington suffering from the trade war or anyone in Portland that faces a relatively high cost of living. Financial challenges and mounting debt are problems for most people. While it’s comforting to know that you’re not alone in your struggles, you’re probably primarily concerned with managing your financial circumstances to the best of your ability. Know that there are resources available designed to help you regain a firm financial foundation.

Depending on the specifics of your financial situation, you may want to consider the Maine debt settlement process. In a debt settlement, you make large lump-sum payments to settle your debts for less than the full amount due on each account. Essentially, your creditor(s) agree to forgive a portion of the debt you owe and to close your account in exchange for a single, significant payment that represents a hefty fraction of your overall balance. This process will temporarily hurt your credit score, but it can also allow you to stabilize your financial situation so that you can rebuild your credit over time. A debt settlement can be negotiated by you directly or you can hire a Maine debt settlement company to negotiate with your creditors on your behalf.  

Unsecured debts are the most suitable debts for debt settlements. These types of debts include bank-issued credit cards, most store charge cards, gas cards, signature loans, medical bills, and most debts that have been sold to debt collection agencies. Debt buying companies are sometimes easier to negotiate with than standard creditors are. This is because they bought your debt for pennies on the dollar and they're only interested in making a profit. 

Before you commit to this process, note that whenever you settle a debt for less than the total amount due, the creditor will send you a 1099 form for the difference between the outstanding balance and the lump-sum amount for which you settled. The difference will be taxable income for you. This is true even though you received no money from the creditor. The IRS will expect you to pay income taxes on this amount. You won’t face this challenge with debt consolidations or debt management plans since these programs pay your full outstanding balance. Bankruptcies exempt this discharge of indebtedness income from your taxable income due to the tax law's special treatment of bankruptcy.

Learn More Through Free Nonprofit Credit Counseling

You may have to meet with a few different professionals in your search for the best financial solution. The first meeting should be with a nonprofit credit counseling agency. Your credit counseling session will be confidential and free. Your credit counselor will look at your bills, income, and expenses to make an assessment of your financial situation. You and your credit counselor will set personal financial goals for you. Your trained and certified credit counselor will then make a personalized recommendation for the best debt solution(s) for your situation. If your counselor recommends a debt settlement, it’s a good idea to ask your counselor if they can recommend a reputable Maine debt settlement company to work with. 

Since your credit counselor will be your initial guide through the complex jungle of financial solutions, it's important that you find a good credit counselor. The easiest way to know if a credit counseling agency is reputable is to see if they are a member of the National Foundation for Credit Counseling (NFCC). The NFCC has strict standards for its members. It's the "gold standard" for credit counselors.

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How to Settle Your Debts in Maine

This guide focuses on the steps you’ll need to take to accomplish a successful debt settlement. The remainder of the guide looks at other debt-relief options that may be a better fit for your financial situation, depending on your circumstances.


Collect the Details About Your Debts

The first thing you’re going to need to do if you’re considering debt settlement is to gather all your debt-related account statements and decide which unsecured debts you might want to settle. Take a close look at the interest rates, minimum payments, and the outstanding balance on each account to determine which ones you could potentially afford to settle and which ones might be “worth” settling. Sometimes when a person is in default, they throw away or lose their bills. Sometimes, the creditor stops sending bills. The easiest place to find these statements is on the online billing section of the creditors’ websites or by referencing your free credit report from all three credit bureaus. You’ll also need these reports to find debts you've forgotten about, determine any deficiency balances on repossessions, and correct any errors on your credit report. A deficiency balance is the difference in the car loan balance and the proceeds of selling a car after a repossession. You’ll also want to assess whether any of your debts have been purchased from your original creditors by debt collections agencies. If so, you’ll need to negotiate with these “debt buyers” directly. 

Collect Details About Your Ability to Settle Your Debts

If you already have access to a significant sum or you’re planning on selling property to fund your settlement offers, you already have a strong sense of how much money you can invest in the debt settlement process. However, if you are planning to make your debt settlement offers from your income (over the span of 2-3 months or so) through a payment plan with a Maine debt settlement company or an installment agreement with a creditor, you’ll need to determine what disposable income you’ll have available to make your monthly payments. Disposable income is the money you have left after you subtract your expenses from your take home pay. Make sure to calculate both your income and your expenses accurately when making this determination or you could unintentionally inflate your disposable income total. Then you’ll be left in the tough position of sacrificing expenses to fund your monthly settlement payments. You can’t get behind on your settlement payments or your creditors could nullify your settlement process. As a result, you’ll be left in a worse financial position than when you started. 

Learn About the Costs to Settle Your Debts in Maine

By law, a Maine debt settlement company can only charge you fees after they have settled a debt for you. In most cases, the fee will be a “contingency fee.” That is, it will be a fee that’s based on how much money they save for you. The debt settlement company will get a percentage of these savings. Some debt settlement companies take a percentage of the total debt amount instead of a percentage of the savings. It's better for you if the Maine debt settlement company uses a contingency fee because they only get paid to the extent they benefit you. If they don't do you any good, they'll get little money from negotiating on your behalf.

Decide Whether to Work With a Maine Debt Settlement Company

Anyone can negotiate debt settlement offers themselves. You don't have to hire a debt settlement company to negotiate with your creditors if you don’t want to. One advantage of doing your own debt settlement is that you save a lot of fees. The downside is that you don't have the insider knowledge of what kinds of offers creditors will accept that a good Maine debt settlement company has. A reputable debt settlement company can be an asset to your settlement process, especially if the idea of negotiating with your creditors makes you a little queasy. The trick is, you need to make sure you’re hiring a reputable debt settlement company that won’t try to take advantage of you. Remember that your credit counselor may have an idea of who the best debt settlement companies are in your area.

Research Maine Debt Settlement Companies

Under the law, there are a few pieces of information that a Maine debt settlement company must disclose to you before you hire them. They must give you an idea of how long it will be before they begin debt negotiations. If a debt settlement company advises you to stop making payments to your creditors, it must tell you about the negative consequences of not paying your debts. These consequences may include a negative impact on your credit score, potential lawsuits from creditors, late fees and higher interest rates, and further collection activities such as collection calls from debt collectors. If a settlement company is not forthcoming about this information, take your business elsewhere. 

It's important to do your due diligence before hiring a Maine debt settlement company. The first step is to check the company's Better Business Bureau ratings. Next, take advantage of the resources made available from Maine's Attorney General. See this warning about debt-relief scams from the Attorney General. Use this search tool to make sure the debt settlement company has a license to do business in Maine. You can use this tool from the Maine Department of Consumer Credit Protection to see actions taken by that agency against companies (dating back to 2004). If you have any questions about complaints or the reputation of a debt settlement company, you can call the Maine Attorney General's Consumer Protection Hotline at either of these phone numbers: (207) 626-8849 or (800) 436-2131.

How to Make Your Debt Settlement Work

If you're paying for a debt settlement over the period of a few months out of your income (as opposed to offering a lump sum you already have or the profits from sale of property), it's going to be very important that you stay on budget during this time. Whether you’re entering into a payment plan with a Maine debt settlement company to build up a balance for settlement offers or you’re making short-term installment payments directly to a creditor, you need to budget very, very carefully. If you miss even one scheduled payment because you didn’t account for your income or expenses accurately, your entire debt settlement process could fall through. 

Alternatives to Debt Settlement

Debt settlement can be an effective debt relief option under ideal circumstances. But, for most people, alternative debt solutions are better options. Why? Most people who have fallen behind on their debts simply don’t have significant income or assets available to fund settlement offers. Debt consolidation loans, debt management plans, and bankruptcies are better solutions for most people and for most types of debt. 

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Maine Debt Consolidation

A Maine debt consolidation loan allows you to combine your unsecured debts by acting as a balance transfer. You secure a new line of credit with favorable terms and then use this credit to pay off any debts that have less favorable terms. A consolidation is only a good solution if your credit score is high enough to qualify for a loan large enough (and favorable enough) to settle the debts you’re interested in streamlining. If your credit score isn’t high enough to make this process work, consider a debt management plan. 

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Maine Debt Management Plan

A Maine debt management plan is a form of debt consolidation that doesn’t require you to secure a new line of credit before you can streamline your debts. In a debt management plan, your certified credit counselor negotiates with your creditors to construct a favorable repayment plan for your eligible unsecured debt. You then pay the credit counseling agency a single monthly payment. The credit counseling agency then pays your creditors for you. The credit counseling agency does all the “heavy lifting” on your behalf, so this is a great option for most Americans. 

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Maine Bankruptcy

A Maine bankruptcy is the ultimate debt relief solution. If you're having debt challenges, you can benefit from learning about your bankruptcy rights, even if you don’t plan on filing for bankruptcy. Knowing these rights will put you in a better bargaining position should you decide to negotiate a debt settlement yourself. One reason a creditor may be willing to settle with you is that they know they'll get little or nothing if you file for bankruptcy. Additionally, if you earn little income or your debts are overwhelming, bankruptcy might be your best option. It's a good idea to take advantage of the free initial consultations that most bankruptcy attorneys provide, as you’ll learn valuable information this way. However, as filing a bankruptcy can be expensive, Upsolve provides a free tool to help people file their own Chapter 7 bankruptcies in cases that don't require an attorney’s help. 

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