Can You Cancel a Debt Settlement Contract?

There are several reasons you could decide to cancel a debt settlement contract after starting: you might receive a financial windfall, for instance, and discover that you can repay your debts as agreed. You could file bankruptcy, or you may find that you don't need to settle every one of your debts to reset your finances and get back on your feet.

A reputable debt relief company will let you out of your debt settlement contract. Here's how it works.

Federal Law and Debt Relief Cancellation

You might be surprised to learn that there's no federal law requiring debt settlement providers to let you out of your contract without penalty. In other words, they don’t have to. This is one of the reasons it's important that you read and understand your agreement before signing or paying any money.

While some states have laws that address debt relief cancellation, for example by requiring companies to honor a "cooling-off period" in which you can cancel without penalty, your best bet is to work with a reputable debt settlement company. (One way to check a company’s reputation is to look at its Trustpilot rating.)

At Freedom Debt Relief, you can cancel your agreement at any time by notifying your Debt Consultant. If you cancel, any balance in your settlement account is returned to you.

Other reputable debt settlement companies may allow you to cancel your agreement any time prior to reaching a settlement, without fining or penalizing you. This will be stated in your contract, and your Debt Consultant can show you that provision and explain everything you need to know. 

How to Cancel a Debt Settlement Contract

The cancellation process varies among debt relief providers, but here's a general guide. 

Review your contract and contact your debt relief company

Your contract tells you the exact requirements of your agreement, and answers many questions. A human representative should be able to explain anything you still need to know.

Inform your debt relief provider in writing

Even if it's not required, notifying your debt settlement company in writing can help you make sure there are no misunderstandings. Some debt relief providers give you a cancellation notice form to fill out, sign, date, and submit. Others allow you to call, fax, or email.

If you cancel your agreement over the phone or online, make sure you get confirmation of the cancellation in writing. Keep this with your records. It’s good practice with any contract to keep a paper trail. Again, this can help you avoid misunderstandings down the road. 

Sort out refundable fees and deposits 

Debt relief companies can't charge debt settlement fees unless and until you and the creditor agree to a settlement, and the funds to settle the debt are paid. At that point, settlement fees earned by the debt relief provider are not refundable. Account management fees paid to third parties, like the bank that administers the settlement account, aren't generally refundable. 

Debt settlement company cancellation policies differ. Some may impose penalties or fines, depending on when you cancel your agreement. It's important to understand this before signing on with a debt settlement service. 

Fees paid to debt relief providers prior to the end of a cooling-off period (in states that require them) are usually fully refundable. Deposits into your debt settlement account or escrow are yours, so are usually refunded as well. 

Consequences of Debt Relief Cancellation

Once you cancel a debt settlement contract, any negotiations between your debt relief provider and your creditors stop. Creditors will probably contact you about repayment, so prepare for how you'll handle them, including whether you’ll negotiate for yourself instead. 

This is a good time to recheck your budget and figure out where the money to repay your obligations could come from. If you find enough income to work with, you may be able to reach an agreement with your creditors to repay them over time. 

Understand that ignoring your debts could cause your creditors to step up collection efforts, or even file a lawsuit. Maintain contact with them even if it's uncomfortable or inconvenient. 

Can You Just Stop Paying a Debt Relief Company?

If you're under debt stress, it may be tempting to stop paying into your debt settlement account, stop speaking to your Debt Consultant, and stop answering your phone. No one hunts you down if you quit paying into your debt settlement account. 

If you can't afford your debt relief contributions, though, it's better to contact your debt settlement company about it. Your Debt Consultant may be able to change your payment schedule, temporarily suspend your contributions, or adjust your plan to make it more affordable.

Ghosting your provider, on the other hand, may cost you. For example, if your debt settlement account stays open, you may be charged monthly fees by the bank managing the account. But if you cancel the debt settlement contract and close the account, the fees stop. 

More importantly, your Debt Consultant can't work with you to resolve your debt if they don't know there's a problem. 

Cancellation May Be the Right Decision

Debt relief isn't an easy road, and canceling your contract might be the right decision in your circumstances. But you owe it to yourself to make sure before pulling the ripcord. Be sure to follow the process outlined in your contract to protect yourself and avoid unwelcome surprises.