Understanding Your Options: Canceling a Debt Cancellation Agreement
6 MIN READ
Published January 23, 2024 | Updated January 30, 2024
A debt cancellation agreement is made between you and a debt settlement company to reduce the total debt you owe. For many borrowers, debt settlement is an effective way to settle delinquent accounts if they can’t afford to pay it off in full. However, you may realize later that it’s not the right solution for your debt problems.
So, if this happens, can you cancel a debt cancellation agreement? Yes, it’s possible to cancel the agreement if you don’t want to continue with it. However, things may be slightly more complicated if you’ve already made several payments.
What Is a Debt Cancellation Agreement, and Can You Cancel It?
A debt cancellation agreement is a contract between you and a debt settlement attorney or company. The contract specifies the terms of the agreement, including how much money you’ll deposit in an escrow account each month towards a lump sum payment and the amount of canceled debt you can expect.
Can you cancel a debt settlement contract? Yes, the process is fairly easy if you haven’t started making any payments. However, if you have started making payments and have given permission to draft the fees directly from your bank account, you’ll also need to contact your bank.
Depending on the agreement you have signed, you may be able to void the agreement simply by rescinding a payment in some cases. However, it’s important to remember that if you cancel the agreement, you’ll still owe the debt you had when you started and will need to find a way to repay it.
Things To Consider Before Canceling a Debt Cancellation Agreement
While canceling a debt cancellation agreement is possible, it’s important to understand the consequences so you can be better prepared.
When you cancel the debt settlement agreement, you’ll still owe the same debt you had when you started the debt settlement process. If you don’t have a plan to repay this debt, you may start receiving calls from debt collectors. In many cases, creditors may file a lawsuit against you, which can result in wage garnishment.
If you have a lot of consumer credit and high-interest credit card debt, you may also need to file for bankruptcy for legal protection. However, by filing for bankruptcy, your credit score will suffer a major impact, making it difficult for you to receive approval on a new loan or line of credit in the future. Have a repayment plan in place before you cancel your agreement.
“Typically, when you cancel out of any debt relief program, you lose any fees that have already been paid (or are due) to your service provider and once again become responsible for repaying your full debt amount(s),” explains Brad Reichert, debt expert and founder and managing director of Reichert Asset Management LLC. “You’ll also be charged additional interest and fees by your lender(s) and be subject to resumed or even more intense collection efforts (in the form of calls and letters) by debt collectors and other agencies,” he warns.
Any money that you’ve paid into a debt settlement account is yours, and you’ll be able to get it back. However, the fees that a debt settlement company has legally earned will not be returned to you.
How To Cancel a Debt Cancellation Agreement
If you’re wondering how to cancel a debt settlement contract, we’ve provided a step-by-step guide to follow:
- Submit a Notice of Intent to Cancel to the debt settlement company and your creditor if you want to cancel the agreement before the end of the term.
- Contact the debt settlement company to ask about their cancellation process and follow their instructions.
- Pay the required fines or penalty fees for exiting the contract. If you choose not to make these payments, you may be left in a financially undesirable place.
- After cancellation, you’ll receive a refund for any deposits you’ve made into your escrow account up to that point.
- Speak to your creditor about your options to repay the debts you still owe or renegotiate loan terms.
Alternatives to Canceling a Debt Cancellation Agreement
Once you’ve canceled a debt cancellation agreement, you shouldn’t wait to follow up on your debt situation and implement alternative methods to address and resolve your situation–there are several other debt-relief options at your disposal. Your lender may also agree to let you continue making payments as per your original agreement. Consider credit counseling to learn more about your options.
If you exited the debt cancellation agreement because your debts are too overwhelming, seek legal advice to determine if bankruptcy is right for you.
If you cancel your agreement because you are not satisfied with the services of the debt settlement company, you could always choose another company to work with to settle your debts.
Another option is to negotiate a debt settlement on your own. Speak to your lenders to see if they’ll allow you to continue making payments as per the agreement the debt settlement company had arranged for you. You can also negotiate new terms for the settlement if you feel the original debt settlement wasn’t advantageous enough.
If you still have a good credit score and are able to qualify for a debt consolidation loan at a lower interest rate than what you’re currently paying, you can roll all your debts into a single loan to streamline payments.
However, it’s important to remember that most borrowers only enroll in a debt settlement program when they’re already behind on their payments. It’s likely that your credit score may already be poor due to the missed payments, so it may be difficult to qualify for a debt consolidation loan.
The Bottom Line on Canceling a Debt Cancellation Agreement
Canceling a debt cancellation agreement is possible and usually easy. Ultimately, you’ll need to decide if canceling the agreement is the right choice for your financial situation and if you have a better option to repay the outstanding debt.
Before you dive in, research your choices and see if it would be better to stick to your existing program or opt for another debt relief program. If you have too much debt, bankruptcy may be the only option available to become debt-free.