California Debt Relief: Facts, Programs, and Solutions

California's healthy economy and natural attractions make it a preferred place to live for millions of people. If you're one of them, you probably know that life in the Golden State can be expensive. In fact, it’s among the very priciest states to live in. You've got rent or mortgage payments to manage, utilities, groceries—it all adds up. 

And sometimes, you might rely on credit cards to cover the gap. Debt can hold you back financially, but it doesn't have to. California debt relief can help you resolve what you owe so you can live life to the fullest. 

Californians can free up cash each month with Freedom Debt Relief

Ozzy S., Freedom client²

Individual results are not typical and will vary.

“Right away, I had more money each month because of program costs so much less than what I was paying on my minimums.”

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$22,738🎉

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What Is Debt Relief?

Debt relief isn't just one thing; it's a range of solutions people use to manage debt when they feel overwhelmed. 

For many people, debt relief means debt settlement. When you settle debt, you work out an agreement with your creditor to accept less than what's owed. The rest of your balance is forgiven. 

Your creditor gets paid something, so the debt isn't a total loss. And you get to hit the reset button on your finances. 

Your situation can influence the type of debt relief that's best for your needs. Aside from debt settlement, debt relief options include:

• Debt consolidation

• Debt management plans (DMP)

• Credit counseling

• Bankruptcy

What is the typical duration and success rate of various debt relief programs available in California?

How long it takes to get rid of debt using any given debt relief method will depend on a lot of factors, including how much debt you have, your income, and the strategy you use.

• Debt consolidation, debt management plans (DMPs). Paying off your debts through regular monthly payments will likely take a few years if you have significant debt. Most DMPs take three to five years.

• Debt settlement. Negotiating with creditors takes time, especially if you're dealing with multiple creditors and/or multiple debts. Expect the process to take 24 to 48 months.

• Bankruptcy. Chapter 7 bankruptcy is the quickest form of debt relief, as the process can often be completed in a few months. Chapter 11 and Chapter 13 bankruptcies can take up to a few years to complete, depending on the nature of your debt repayment plan.

Your success with any given debt relief method is going to depend a lot on your specific circumstances. Consult with a professional if you're not sure about the best method.

Average Credit Card Debt in California: Debt Relief Seekers

Credit card debt in California impacts many across all age groups. We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during November 2024. Here are the key statistics:

Copyright© $2024. Freedom Debt Relief, LLC.
 www.freedomdebtrelief.com

This snapshot shows that the average credit card debt for Californians seeking debt relief rose slightly month-over-month (MoM), with the percentage of debt holders and the average debt for balance carriers experiencing a modest increase.

Breakdown of average credit card debt by age group

This breakdown shows how credit card debt affects each age group in California, with older adults generally carrying higher balances and a greater proportion holding debt.

Copyright© $2024. Freedom Debt Relief, LLC.
 www.freedomdebtrelief.com

California Debt Relief Programs: How Do They Work?

When it comes to debt relief, California residents have choices. At the top of the list are debt settlement, bankruptcy, and credit counseling. 

• Debt settlement. California debt relief programs can help you resolve your debt for less than what you owe. This debt solution is typically best suited for people who mostly owe unsecured debts like credit cards or medical bills, have $7,500 or more in debt, and have a financial hardship that’s making full repayment difficult or impossible. 

• Bankruptcy. Bankruptcy allows you to either eliminate debts in Chapter 7 bankruptcy, or restructure your payments through Chapter 13. Whether you file Chapter 7 or Chapter 13 partly depends on your income. While bankruptcy is often considered one of the more extreme debt options, it can be the best solution if you can't afford to pay what you owe, or need more time to pay and want some legal protection against collection actions. 

• Credit counseling. A credit counselor can review your debt and budget and offer personalized solutions for relief. One of those might be a debt management plan, which allows you to pay off credit card debt, typically over two to five years. A debt management plan can also offer reduced fees or interest rates but you won’t get a discount on the amount of debt you owe.

How effective are these debt relief options? 

Debt settlement could drastically reduce the amount you pay back to your creditors. And you could clear your debts in as little as 24 to 48 months. 

Bankruptcy could eliminate all of your unsecured debt—however, there's a catch. If you file Chapter 7, you may have to give up some of your assets to satisfy your creditors. Assets are things you own that have some value. California law allows you to exempt certain assets. In other words, there are some things that are protected from creditors. It's important to consider what kind of trade-off you might have to make to clear your debts. 

Debt management plans can help you get out of debt, but only if you stick with them. The FTC estimates that the overall success rate for DMPs is 21%, which suggests they ultimately don't work out for the majority of people who enroll.

What are the alternatives to formal debt relief programs for individuals in California, such as DIY debt negotiation?

You can manage your own debt relief in California using a number of strategies. Most start with creating a personal budget.

A good budget should include all your income and expenses. It organizes your finances and shows you the extra money you could use toward debt repayment.

Then, pick a repayment strategy. In the debt snowball, make minimum payments toward all your debts, except the one with the lowest balance. Send all your extra cash to that one. Once that's paid, move on to the second-lowest balance. Knocking out debts can help you stay motivated.

Another option is the debt avalanche method, which puts any extra money toward the debt with the highest interest rate. This method lets you wipe out the most expensive debt first, so you pay less in interest overall.

DIY debt negotiation requires convincing your creditors to accept less than you owe to get rid of your debts. It takes persistence and organization to successfully negotiate debts.

Debt Settlement: A Powerful Solution for California Residents

Debt settlement, sometimes referred to as debt negotiation, could reduce what you owe by 25% to 50%. It's possible a creditor might agree to an even larger reduction of your debt. 

Here's how debt settlement in California typically works. 

• You contact a professional debt settlement company to discuss your situation.

• If you're a good candidate, the debt settlement company outlines a plan to help settle your debts.

• You make monthly payments into a secure account that you control.

• The debt settlement company negotiates a reduction of your debt with your creditors. 

• Once an agreement is reached, you authorize the debt settlement company to use funds in your secure account to pay your creditor. The debt settlement company takes its fee out of the same account.

That's a simplified overview of the process, but the takeaway is clear—debt settlement offers a path to relief from financial stress and debt shame. 

Who is debt settlement for? You might consider it if you:

• Owe a significant amount of unsecured, high-interest debt

• Would like to get out of debt sooner rather than later

• Can set aside money for settlements

When you reduce debt through negotiation vs. another option like consolidation, you can save money and pay it off faster. 

How do California debt settlement programs work and what are their pros and cons?

California debt settlement programs negotiate with your creditors on your behalf. If your creditors agree, you pay them less than the full amount and they forgive the rest. 

Most people enrolled in a debt settlement program choose to stop making debt payments so they can afford to save money for settlement offers. You put the money you would have used for monthly payments into a Dedicated Account for debt settlement. Once you’ve saved enough money, the debt settlement program can try to negotiate a lump-sum settlement for you. Some creditors agree to a series of payments, even with partial debt forgiveness.

Here are the pros and cons of California debt settlement programs.

Is Debt Consolidation the Right Choice?

Debt consolidation is an alternative to debt settlement. When you consolidate debt, you take out a new loan and use the proceeds to pay off credit cards, medical bills, or other debts. That leaves you with one loan payment each month. You could also pay less in interest if your loan has a lower rate than the combined rate on your credit cards. 

Is debt consolidation vs. debt settlement a better option? Yes, for some California residents, but no for others. 

Debt consolidation could make sense if you:

• Have good or excellent credit

• Would like to simplify monthly debt payments

• Owe an amount of debt you believe you can reasonably handle, since consolidation doesn't reduce the amount you owe, it only combines your debts. 

Debt settlement may be the better choice if you: 

• Want to reduce the total amount you owe 

• Have experienced a financial hardship that makes it difficult to keep up with debt payments

• Owe a larger amount of unsecured, high-interest debt

If you’re interested in debt consolidation, it's important to shop around. Compare personal loans for debt relief from different lenders to estimate how much you can borrow and what you'd pay in interest.

Differences between debt consolidation loans and debt management plans in California

Debt consolidation loans and debt management plans (DMPs) are strategies to manage debt. 

A debt consolidation loan is a new loan that you use to pay off multiple existing debts. You might get a lower total monthly payment, a lower interest rate, or both. 

To get a low interest rate, you need good credit. But even without good credit you might qualify for an interest rate that’s lower than the rate on your credit cards.  Debt consolidation repayment terms usually last between two and six years.

A debt management plan is offered by credit counseling agencies. A counselor negotiates with creditors to reduce interest rates and create a structured repayment plan. You'll make a single monthly payment to the agency, which pays the creditors. 

You don't need a specific credit score to get a DMP, but you may need to stop using your credit cards. You also need to be able to afford a payment designed to fully pay off your unsecured debts within three to five years.

List of accredited nonprofit credit counseling agencies in California offering debt management plans

Here are two places to find a list of accredited nonprofit credit counseling agencies in California:

• The U.S. Department of Justice maintains a list of accredited nonprofit credit counseling agencies. You can filter the list by state to view credit counseling agencies that serve California.

• The Department of Financial Protection and Innovation (DFPI) also has a page on credit counseling agencies. It includes a list of nonprofit credit counselors that have filed the documents to operate under California Financial Code section 12104.

Some of these agencies may not offer debt management plans. Services offered depend on the agency. Certain agencies focus specifically on courses for people planning to file for bankruptcy.

Another option is to use an organization that connects you with an agency based on your needs. Multiple organizations have networks of accredited credit counseling agencies. Options include the National Foundation for Credit Counseling (NFCC), Financial Counseling Association of America (FCAA), and American Consumer Credit Counseling (ACCC). Each organization has an online form you can submit to get connected with an agency.

Specialized Debt Relief in California

Need more information about debt relief for medical debt, payday loan debt, student loan debt, mortgage debt, or for married couples, small business owners, seniors, or veterans? We've got you covered.

What options exist for medical debt relief for California residents?

Medical debt relief options for California residents include:

• Financial assistance: Hospitals and healthcare providers may have financial assistance options available, such as discounted services or even debt forgiveness. Contact the healthcare provider, explain that you’re going through a financial hardship, and ask what your options are.

• Debt settlement: If you can’t pay your bill in full, you could ask whether the healthcare provider will accept a smaller amount. Or, a California debt settlement program could handle the negotiations on your behalf. 

• Government-sponsored medical debt relief: Los Angeles County’s Medical Debt Relief Program is one option. You could qualify for relief of eligible medical debt through this program if you’re a resident of Los Angeles County. The program requires that you earn less than or equal to 400% of the federal poverty level or that your medical bills are 5% or more of your annual household income.

Can California debt relief programs assist with overwhelming payday loan debt?

Yes, California debt relief programs can help some people with payday loan debt. The right program will depend on how much debt you have and whether you can make monthly payments.

One option is credit counseling. A credit counselor can also set you up with a formal debt management plan (DMP). In this program, you make one monthly payment to the agency, which pays your creditors. A DMP can help you get lower interest rates on your debts but typically requires closing all your credit accounts.

Debt settlement is an option for people who can't afford to repay their payday loans in full. It involves negotiating with your creditors to accept less than you owe to get rid of your debts. You can try debt settlement yourself or hire a professional debt settlement company for a fee.

Are there specific California government programs for student loan debt relief?

No. California doesn’t currently have any state-specific programs for student loan debt relief. There are some federal student loan forgiveness programs available. Federal student loans also provide the option of an income-driven repayment (IDR) plan for those who are eligible. An IDR plan could eventually lead to debt forgiveness after enough qualifying payments.

California also doesn’t offer debt relief for private student loans, nor are there any federal relief programs available for private loans. But private loans may be negotiable if you can’t make your payments. You could ask whether the lender offers loan forbearance or will accept a debt settlement. Here’s how each option works:

• Forbearance is a temporary pause or reduction in your loan payments.

• Debt settlement is when your creditor lets you close out the debt for less than what you owe.

If you want to settle your private student loans, you could negotiate yourself or work with a California debt relief company.

How to apply for the California Mortgage Relief Program?

The California Mortgage Relief Program no longer offers grants to homeowners. There is a mortgage relief program available to victims of the Los Angeles firestorms. Over 400 financial institutions have committed to the following mortgage relief:

• 90-day mortgage forbearance periods with a streamlined application process that doesn’t require forms or documents for requesting initial relief. 

• Lenders aren’t requiring immediate repayment of unpaid amounts at the end of the forbearance period.

• Relief from mortgage-related late fees accrued during the forbearance period.

• Protection from new foreclosures or evictions for at least 60 days.

• No reporting of late payments for amounts in forbearance to credit agencies.

To get mortgage relief, you must be a qualified resident of Los Angeles County. You also need to be a customer of one of the institutions that has committed to offering mortgage relief. Contact your mortgage lender to request mortgage relief.

Even if you can’t get mortgage relief through this particular program, you can always contact your lender to find out what your options are.

How do California’s community property laws affect debt liability and relief options for married couples?

California's community property laws mean that debts acquired while married are equally owned by both people—even if only one spouse signed for the debt. Debt that was taken on before the marriage is typically not part of community property.

Both spouses are equally responsible for repaying community debts. This means creditors and debt collectors can contact either of you in an attempt to collect payment. Any assets obtained during the marriage could also be subject to legal action.

While you're both responsible for community debts, you don't need to pursue debt relief jointly. You can use most debt relief strategies on your own, including credit counseling, consolidation, and debt settlement.

You can also file for bankruptcy individually or together with your spouse. Both options have pros and cons, depending on who owns the debt. A bankruptcy attorney can help you determine the best method for your specific situation.

Are there any California debt relief programs specifically designed for small business owners facing financial hardship?

There are no programs specifically for small business debt relief in California. Several state programs have a mission of helping small businesses access capital for various needs, including:

• California Small Business Loan Guarantee Program (administered by iBank)

• California Capital Access Program (CalCAP)

Small businesses in California can also apply for federal Small Business Administration (SBA) loans if they qualify.

California small businesses can pursue other forms of debt relief, such as consolidation loans or debt settlement. Your business may also be eligible to file for bankruptcy.

Small business bankruptcy has two main types. If you want to try to save your business, you can file for Chapter 11 bankruptcy. You’ll still need to repay your debts, though you may be able to negotiate better repayment terms.

Chapter 7 bankruptcy is also known as liquidation bankruptcy. Your business's assets will be sold to pay your creditors, and the rest of your unsecured business debt is typically discharged (forgiven).

Are there specialized debt relief options for seniors or veterans residing in California?

The California government doesn't have specific debt relief programs for seniors or veterans. However, the state government offers a variety of financial assistance programs that may help alleviate the burden of debt.

Seniors can contact the California Department of Aging (CDA) for information and resources for California residents. Veterans can contact the California Department of Veterans Affairs (CalVet).

California residents can also use a nonprofit credit counseling agency. Credit counselors can offer money management help as part of a debt management plan. 

Debt consolidation is an option for people who can qualify for a new loan. You use the new loan to pay off multiple existing debts. The new loan should ideally have a lower interest rate than your current debt.

Debt settlement is another debt relief option in California. This involves negotiating with your creditors to accept less than you owe to get rid of your debts. You can handle debt settlement on your own or use a professional debt settlement company.

California Statute of Limitations

California debt laws determine the statute of limitations (SOL), which is how long a creditor has to try to collect on unpaid debts. The current SOL is four years for written debts, which includes credit cards. 

When the statute of limitations in California expires on a debt, it becomes “time-barred.” That means you can no longer be targeted for debt collection, i.e., creditors can't sue you to get you to pay.

The debt doesn't go away, nor does your responsibility for it. But if a debt is close to the SOL date, the creditor may be more open to a settlement. 

Time-barred debts can be tricky, because it's possible to restart the clock on the SOL if you make a partial payment or agree to pay. You may want to talk to a debt relief expert or debt attorney about expired debts if you're interested in a settlement. 

Legal, Tax, and Credit Consequences of California Debt Relief

Seeking debt relief in California can impact your taxes, credit score, and more—but finding the right solution for you can help mitigate negative consequences.

What are the legal consequences of defaulting on debt in California versus seeking a structured relief program?

You’re in default on a debt in California as soon as you stop making payments. While creditors can take legal action at this point, most will prefer less extreme collection efforts first. If those don't work, then your debt may be sold to a collection agency or you could be sued.

Creditors can take you to court over unpaid debts. If you lose the judgment, you could face garnishment of your paycheck. If you have secured loans, the collateral could be taken. In the case of a mortgage or auto loan, this would mean losing your house or vehicle.

You may avoid some of these legal consequences if you choose a structured debt relief program. For example, creditors can't sue you over debts that have been legally discharged in a bankruptcy.

Similarly, creditors may not need to take legal action if you enter into a debt management program (DMP) or have started negotiations as part of a debt settlement program. 

What is the impact of enrolling in a California debt relief program on your credit score?

Enrollment in a California debt relief program doesn’t affect your credit score. But the debt relief process will likely have an impact on your credit.

People who sign up for debt relief programs usually choose to stop making payments on their debts. This serves two purposes:

• It lets you save up money to offer your creditors to settle your debt

• It sends a signal that you’re in financial distress. If you’re caught up on payments, a creditor might have a hard time believing that you can’t pay in full.

If you stop making your debt payments, your credit score is likely to drop. Payment history has the largest impact on your credit score. But if you’ve already fallen behind on your payments or have debt in collections, the damage might not be as bad as you expect. Your credit score has probably already taken a hit in that scenario.

In the long run, a debt relief program could put you in a better position to build and maintain a strong credit profile and better financial health. Debt relief helps you get rid of your debt. After that, you can focus on rebuilding your credit and designing a budget that helps you avoid crushing debt in the future.

What are the potential tax implications of debt forgiveness through California relief programs?

Both the IRS and the California Franchise Tax Board consider most forgiven debt to be taxable income. You may need to pay federal and state income taxes on debt forgiven during debt settlement or through another debt relief program.

Creditors are required to send you a Form 1099-C if they forgive $600 or more in debt. Unless you qualify for an exclusion, you would report your forgiven debt as "Other Income" on your annual tax returns.

The most common exclusion for paying taxes on forgiven debt is insolvency—when you owe more than you own. You generally don't need to pay income taxes on forgiven debt if it's less than the amount you were insolvent at the time it was forgiven.

To determine insolvency, list out all of your assets, such as property, cash, and investments, and add up their values. Then, subtract any liabilities, including loans and credit card debt. If you get a negative amount, you are insolvent by that amount.

Financial hardship assistance exists to help people who find it difficult to pay their bills. There is no federal debt relief program for credit cards, though there are programs that can help with other types of debts, such as student loans or back taxes. 

State relief programs can also provide help in certain situations. If you need help, consider these California hardship programs:

• CalWORKS. CalWORKS provides cash assistance to help families cover housing costs, utilities, food, and medical bills. 

• Low-Income Energy Assistance Program (LIHEAP). LIHEAP offers one-time assistance with utility bills, and free help to make energy-efficient upgrades to your home. 

• California LifeLine. The LifeLine program offers low-cost phone services to eligible California households. 

Your local Department of Social Services can help you explore options if you have a financial hardship. If you specifically need help with credit cards, you might contact your creditors directly—many credit card companies offer hardship programs that temporarily lower or pause payments until you're back on your feet. 

What are the eligibility criteria for California state-sponsored debt relief programs?

California has a Debt Reduction Program for eligible parents paying child support. The program applies if you owe money to the state because your dependent children received public assistance or were in foster care while you weren’t paying court-ordered child support. You could reduce the debt you owe the state, but not to the person receiving the child support. Here’s how qualification works:

• You must be able to pay any current child support payments and an ongoing debt payment.

• Qualification depends on your income, assets, and cost of living. The size and makeup of your family are also important.

• The general rule is that you might qualify if it’s unlikely you could pay off your debt to the state within 12 months.

• Decisions are made on a case-by-case basis.

Los Angeles County has a Medical Debt Relief Program. To qualify, you must:

• Be a current resident of Los Angeles County.

• Earn no more than 400% of the federal poverty level or have medical bills that are 5% or more of your annual household income.

• Have eligible medical debt.

Are there any California state grants available to help pay off personal debt?

No, there aren’t any California state grants to help pay off personal debt. But the state has many public assistance programs for households that meet income guidelines. If you qualify, you could apply for public assistance and put the money you save toward your debt.

Public assistance programs in California include:

• CalFresh: Provides monthly food benefits to low-income individuals and families. The benefit amount depends on your income and monthly expenses.

• CalWORKs: Provides cash aid and services to eligible California families in need. Families who qualify can receive money every month for housing, food, and other essential expenses.

• Low-Income Home Energy Assistance Program (LIHEAP): Assists low-income households who pay a high portion of their income on their energy bill.

• Cash Assistance Program for Immigrants (CAPI): Provides monthly cash benefits to aged, blind, and disabled non-citizens ineligible for Supplemental Security Income (SSI) or State Supplementary Payments (SSP) due to their immigration status.

Unemployment Benefits: Provide temporary income for eligible workers who lost their jobs or had their hours reduced through no fault of their own.

Scam Protections and Finding Legitimate California Debt Relief

The state of California has several laws and agencies protecting residents who seek debt relief services.

What are the consumer protection laws in California regarding debt relief services and debt collectors?

California has the following consumer protection laws covering debt relief services and debt collectors:

• The Rosenthal Fair Debt Collection Practices Act governs debt collectors. This act protects consumers against abusive, unfair, and deceptive debt collection practices. It’s similar to the federal Fair Debt Collection Practices Act (FDCPA). But the federal law only applies to third-party debt collectors. California’s version also applies to original creditors, meaning the original lender on the debt.

• The Debt Collection Licensing Act requires that debt collectors be registered and licensed with the state. Debt collectors must also include their license number in written and digital communications with consumers and comply with state reporting requirements.

• The California Consumer Financial Protection Law expands the authority of the Department of Financial Protection and Innovation (DFPI). This law allows the DFPI to oversee new financial services, including debt relief companies and credit repair companies.

How to identify legitimate debt relief companies in California and avoid common scams?

Here’s how to identify legitimate debt relief companies in California:

• They don’t charge upfront fees. A common debt relief scam is an upfront fee. The Federal Trade Commission (FTC) has banned debt relief companies from doing this. Legitimate companies only charge a fee after they negotiate an agreement with your creditor, you approve it, and at least one payment is made.

• They don’t contact you first. Quality debt relief companies don’t need to robocall people. They provide contact information and let you call if you need their services.

• They don’t guarantee specific results. A debt relief company needs to negotiate with your creditors to figure out how much it can settle your debt for. An upfront guarantee to save you a certain amount on your debt is a red flag.

They have testimonials. If a debt relief company has made a positive impact in people’s lives, it should have testimonials from past clients. Look for a testimonials section, ideally with videos, for any debt relief company you’re considering.

What resources does the California Department of Financial Protection and Innovation (DFPI) offer for individuals seeking debt relief?

The DFPI doesn't offer debt relief programs, but California residents can find a lot of educational resources across several debt relief topics:

• Consumer rights. This includes information on what debt collectors are allowed to do and how to avoid debt collection scams.

• Finding a credit counselor. The DFPI has a list of nonprofit consumer credit agencies that can offer debt management plans.

• Your debt relief options. Learn the pros and cons of different debt relief options like debt settlement and consolidation.

You can also use the DFPI to verify businesses, like debt collectors, to ensure they’re licensed or registered with the state. This may help you avoid debt collection or debt relief scams from fraudulent companies.

If you think you’ve been the victim of a financial scam in California, you can file a complaint with the DFPI, in addition to the relevant federal agencies, such as the Federal Trade Commission. You can submit a DFPI complaint or inquiry online.

Find Your California Debt Relief Solution

If you've made it this far, congratulations. Now you're ready for the next step which is to choose a debt relief solution. 

That's where Freedom Debt Relief comes in. We've worked with over half a million Americans to offer personalized debt solutions and we're ready to help you, too. We know that there's no such thing as one-size-fits-all, and our Freedom Financial Certified Debt Consultants can walk you through the options to help you choose the one that best meets your needs. 

California debt help is just a phone call away. Request a free, no-obligation debt relief evaluation with a Certified Debt Consultant by calling 800-910-0065 now.

Californians can free up cash each month with Freedom Debt Relief

Ozzy S., Freedom client²

Individual results are not typical and will vary.

“Right away, I had more money each month because of program costs so much less than what I was paying on my minimums.”

Total Debt Resolved

$22,738🎉

Monthly Payment

$398

Debts Resolved

8

Get a free evaluation

0/5

Excellent • 0+ reviews