December 1, 2023

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California Debt Relief: How to Get Out of Debt in Golden State

Are you struggling with debt in California? You are not alone. The high cost of living in the Golden State, combined with expensive housing, health care, and education, has left many people drowning in debt. If you find yourself unable to pay your bills, facing harassment from creditors, or considering bankruptcy, know that there are options available to you.

In this article, we will explore some of the debt relief programs and strategies available in California, including debt consolidation, credit counseling, debt settlement, and bankruptcy. We will also answer frequently asked questions about debt relief, including its impact on credit scores, taxes, and legal obligations.


Debt Consolidation in California

Debt consolidation is a process of combining multiple debts into one loan, usually with a lower interest rate or lower monthly payments. Debt consolidation can be done through a personal loan, home equity loan, or balance transfer credit card. Debt consolidation can simplify your payments, reduce your interest charges, and help you pay off your debts faster.

One of the advantages of debt consolidation is that it can improve your credit score, as long as you make your payments on time and keep your balances low. However, qualifying for a lower interest rate loan may require a good credit history, stable income, and collateral.

If you own a home in California, you may be able to use a home equity loan or line of credit to consolidate your debts. Home equity loans typically have lower interest rates than personal loans or credit cards, but they also put your home at risk if you fail to repay the loan. Moreover, home equity loans may require an appraisal and closing costs that can add to your debt.

Another option for debt consolidation is a balance transfer credit card. Balance transfer cards allow you to transfer your high-interest credit card balances to a new card with a low or 0% interest rate for a limited period, usually 12-18 months. Balance transfer cards can save you thousands of dollars in interest charges if you pay off your balance before the introductory period ends. However, balance transfer cards may come with transfer fees, high regular rates after the intro period, and limited credit limits.

Credit Counseling in California

Credit counseling is a service that provides financial education, budgeting, and debt management advice. Credit counseling agencies are usually non-profit organizations approved by the Department of Justice or the National Foundation for Credit Counseling (NFCC). Credit counselors can help you create a budget, negotiate with creditors, and enroll in a debt management plan (DMP) that consolidates your debts and reduces your interest rates.

In California, credit counseling agencies are required to be licensed by the Department of Business Oversight (DBO) and abide by strict industry standards. DBO licenses are renewable, and agencies must provide annual financial audits and disclose their fees and services upfront.

Credit counseling agencies usually charge a nominal setup fee and a monthly fee that ranges from $20 to $75, depending on the state and the agency. Some agencies may offer free services for low-income clients or those facing financial hardship.

Debt Settlement in California

Debt settlement is a process of negotiating with creditors to pay off your debts for less than what you owe. Debt settlement companies, also known as debt relief or debt resolution firms, promise to get you out of debt in a short time by reducing your principal balances and stopping collection calls. However, debt settlement can come with high fees, risks, and negative consequences.

In California, debt settlement companies must be registered with the Department of Justice and comply with the California Debt Settlement Services Act (CDSSA), which regulates their activities and protects consumers from fraud and abuse. CDSSA requires debt settlement companies to disclose their fees, services, and outcomes, and prohibits them from charging upfront fees before settling a debt.

Debt settlement companies usually charge a percentage of the enrolled debt, ranging from 15% to 25%, or a flat fee for each settled account. For example, if you owe $50,000 in credit card debt and enroll in a debt settlement program, you may end up paying $12,500 to $20,000 in fees, plus the settled amounts. Debt settlement programs can also damage your credit score, trigger lawsuits, and result in tax liabilities for forgiven amounts.

Bankruptcy in California

Bankruptcy is a legal process that allows you to eliminate or restructure your debts under federal law. Bankruptcy can be a last resort for those facing insurmountable debts, job loss, divorce, or medical emergencies. Filing for bankruptcy can relieve you of unsecured debts, such as credit cards, medical bills, and personal loans, and stop collection actions, garnishments, and foreclosures.

In California, bankruptcy filings are regulated by the US Bankruptcy Court for the Central, Eastern, Northern, and Southern Districts of California. Bankruptcy can be filed under Chapter 7, which eliminates most unsecured debts and requires liquidating your non-exempt assets, or Chapter 13, which restructures your debts into a manageable payment plan for 3-5 years.

Bankruptcy can have significant consequences, such as a drop in your credit score, a public record of your filing, and restrictions on obtaining credit in the future. Bankruptcy can also exempt certain assets, such as homesteads, retirement accounts, and personal property, up to a certain value. Bankruptcy may not discharge certain debts, such as taxes, student loans, and child support.

FAQs About California Debt Relief

Q: Will Debt Relief Hurt My Credit Rating?

Debt relief programs, such as debt consolidation, credit counseling, and debt settlement, can have different effects on your credit rating. Debt consolidation, if done correctly, can help improve your credit score by reducing your credit utilization and lowering your interest rates. Credit counseling and debt management plans may not directly affect your credit, but they require you to close your credit accounts and make payments through the DMP, which may show up on your credit report. Debt settlement can harm your credit score by causing late payments, charge-offs, and delinquencies. Bankruptcy can significantly damage your credit score and stay on your credit report for up to 10 years.

Q: Can I File for Bankruptcy Without an Attorney?

You can file for bankruptcy pro se, without an attorney, but it is not recommended. Filing for bankruptcy requires a complex and detailed process of filling out forms, attending hearings, and negotiating with creditors. Bankruptcy law is also subject to frequent changes and interpretations, making it challenging for non-lawyers to navigate. A bankruptcy attorney can provide valuable advice, representation, and advocacy to protect your rights, assets, and future. Bankruptcy attorneys in California usually charge a flat fee or a retainer plus hourly rates. Some low-income debtors may qualify for free legal assistance through legal aid services or pro bono programs.

Q: What Happens to Taxes in Debt Relief Programs?

Debt relief programs can have different tax implications, depending on the type and amount of the debt forgiven or settled. Debt consolidation usually does not affect your taxes, as you are still paying off the full amount of your debts. Credit counseling and debt management plans may not affect your taxes, but they may trigger a 1099-C form from the debt collector if a debt is settled for less than the full amount, which could result in taxable income. Debt settlement can also result in a 1099-C form and taxable income for the forgiven amount, unless you qualify for an exemption under the insolvency or bankruptcy rules. Bankruptcy can discharge most unsecured debts without tax consequences, but it may not discharge or reduce your tax debts.

Q: What Are My Legal Obligations in Debt Relief Programs?

If you enroll in a debt relief program, you have certain legal obligations to follow, such as making your payments on time, providing accurate and complete information to the creditor or the agency, and avoiding deceptive or fraudulent practices. Debt relief companies are also required by law to follow certain rules and guidelines, such as the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), and state-specific laws, such as the California Rosenthal Fair Debt Collection Practices Act (RFDCPA). Failure to comply with these laws may result in legal actions, fines, and penalties.


Debt can be a stressful and overwhelming burden, but it is not insurmountable. If you are in debt in California, there are several options available to you, from debt consolidation and credit counseling to debt settlement and bankruptcy. Each option has its pros and cons, and each may be suitable for different situations and needs. Before committing to any debt relief program, make sure to research and compare your options, understand the risks and costs involved, and consult with a qualified and experienced professional. With the right support, planning, and commitment, you can get out of debt and regain financial stability.

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Article Summary:

California residents struggling with debt have multiple options for relief, including debt consolidation, credit counseling, debt settlement, and bankruptcy. Debt consolidation can be done through personal loans, home equity loans, or balance transfer credit cards, while credit counseling agencies can provide advice, financial education, and debt management plans. Debt settlement involves negotiating with creditors to pay off debts for less than what is owed, while bankruptcy allows for the elimination or restructuring of debts under federal law. Debt relief programs can have different effects on credit ratings and tax implications, and it is important for clients to understand their legal obligations.

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