Debt settlement is the process in which you negotiate with your creditor to allow you to pay less than what you owe. Debt settlement companies have no time to breathe because more and more consumers are getting into debt. The recession has worsened matters. Debt settlement firms have mushroomed every where and they are competing with each other to offer better rates to retain or enroll new debtors.

The debt settlement industry is undoubtedly helping debtors get rid of debts but not all companies in the industry are extending fair behavior. The BBB, state attorney generals and FTC or the Federal Trade Commission have been receiving regular complaints from consumers that the debt settlement companies are taking debtors for a ride.

California will be shortly passing new regulations that will govern the manner in which the debt settlement companies operate in the industry. This will be possible once the bill AB350 is passed. According to bill AB350, the debt settlement companies will be regulated by Department of Corporations and they have to be licensed in order to extend their services. Most debtors complain that the debt settlement companies charge very high fees and they ask for the fees even before delivering what they have promised. You will be required to pay the fees when you sign the contract with the debt settlement companies or during the first few months of the debt settlement program. However, the bill will not be enforced before January 2012.

As far as the charging fees is concerned, a major change has been included and to quote it

The provider’s total fees must be spread over at least half the length of the program or until offers of settlement by creditors are obtained on at least half of the debts enrolled to the provider.

Many consumers opt for debt settlement because not all debtors are qualifying for bankruptcy as new federal bankruptcy laws that were introduced in October 2005 have made filing bankruptcy very difficult. Moreover, not everyone is qualifying for credit counseling either because they know that they are not in a position to pay off their debts completely. So, debt settlement, where the total amount you owe is greatly reduced is a much sought after debt relief option.

When you opt for debt settlement, the debt settlement companies offering their services will negotiate on your behalf with your creditors and convince them to reduce the outstanding balance by as much as 40% to 60%. A trust account is created and you have to make payments into the trust account till the time you don’t make payments to the creditors. The moment half of the total amount you owe has accumulated, the debt settlement companies start negotiating.