Policy Overview & Summary
Full transparency is essential when evaluating debt relief solutions. This disclosure document outlines how debt settlement works, federal consumer protection mandates under the FTC Telemarketing Sales Rule, fee structures, tax implications, and state-specific regulatory disclosures.
Key Protections & Commitments
FTC TSR Advance Fee Ban
Federal law prohibits debt settlement companies from collecting fees before a debt is successfully settled.
Dedicated Account Ownership
Funds accumulate in an FDIC-insured account that remains under your full ownership and control.
Tax Considerations (1099-C)
Forgiven debt of $600+ may be taxable unless an IRS insolvency exclusion (Form 982) applies.
No Settlement Guarantee
Creditors are not legally obligated to settle and results vary by account balance, creditor, and budget.
1. Publisher & Non-Provider Disclosure
AltFTool and SettleWise Debt Relief operate as an independent consumer information and referral service. AltFTool does NOT negotiate debts, collect settlement fees, provide legal representation, offer credit repair, or issue loans.
When you request debt relief information or matching, you are connected with independent, third-party debt settlement or credit counseling organizations who maintain their own licensing and service agreements.
2. FTC Telemarketing Sales Rule & Advance Fee Ban
Under the Federal Trade Commission's (FTC) Telemarketing Sales Rule (16 CFR Part 310), it is illegal for any debt relief company to collect advance fees before they provide services.
Legitimate debt relief providers can ONLY charge a fee if all of the following conditions are met:
• The provider has successfully negotiated an agreement between you and the creditor.
• You have agreed to the settlement in writing.
• You have made at least one payment directly toward that settlement under the agreed terms.
3. Dedicated Escrow Account Protections
When participating in a debt settlement program, your monthly savings accumulate in a dedicated account managed by an independent third-party escrow administrator:
• Account is held at an insured financial institution in your name.
• You own all funds and accrued interest in the account.
• The administrator cannot disburse funds to creditors or providers without your explicit authorization.
• You have the right to withdraw all of your accumulated funds at any time without penalty (minus previously earned administrative account maintenance fees).
4. Federal & State Tax Consequences (Form 1099-C)
Under Internal Revenue Code Section 61(a)(12), canceled or forgiven debt of $600 or more is generally treated as taxable ordinary income. Creditors may file Form 1099-C with the IRS.
Insolvency Exception: If your total liabilities exceeded your total assets immediately before the debt cancellation, you may be considered insolvent under IRS rules and eligible to exclude some or all of the forgiven debt from taxable income using IRS Form 982. Consult a certified CPA or tax professional.
5. Credit Score & Bureau Reporting Impact
Debt settlement programs rely on accumulating savings rather than making regular minimum monthly payments. Consequently, enrolled accounts typically become delinquent during the savings period, which will cause your credit scores to decline.
Settled accounts are typically reported on your credit files as 'Settled for less than full amount' or 'Paid Settled' and remain on credit reports for up to seven years from the original delinquency date.
6. State-Specific Debt Relief Regulations
Debt settlement services are subject to varying state laws and licensing requirements. In certain states, debt settlement is restricted or subject to strict fee caps:
• California: Regulated under the California Financial Code.
• Texas: Regulated by the Texas Office of Consumer Credit Commissioner (OCCC).
• Illinois, New York & Florida: Require specific statutory disclosures and contractual cancellation windows.
Consumers should review the specific state disclosures provided in partner agreements prior to enrollment.