What North Carolina's Debt Adjusting Law Says
Article 56 of Chapter 14 of the North Carolina General Statutes has governed debt adjusting since 1963; its settlement language was added in 2005 and the article was last amended in 2007. The statute's definition in G.S. 14-423(2) has three parts:
| Part of the definition | Statutory text, G.S. 14-423(2) |
|---|---|
| Distribution programs | entering into or making a contract, express or implied, with a particular debtor whereby the debtor agrees to pay a certain amount of money periodically to the person engaged in the debt adjusting business and that person, for consideration, agrees to distribute, or distributes the same among certain specified creditors in accordance with a plan agreed upon |
| Paid intermediaries that receive funds | the business or practice of any person who holds himself out as acting or offering or attempting to act for consideration as an intermediary between a debtor and his creditors for the purpose of settling, compounding, or in any way altering the terms of payment of any debt of a debtor, and to that end receives money or other property from the debtor, or on behalf of the debtor, for the payment to, or distribution among, the creditors of the debtor |
| Debt settlement with advance fees | the business or practice of debt settlement or foreclosure assistance whereby any person holds himself or herself out as acting for consideration as an intermediary between a debtor and the debtor's creditors for the purpose of reducing, settling, or altering the terms of the payment of any debt of the debtor, whether or not the person distributes the debtor's funds or property among the creditors, and receives a fee or other consideration for reducing, settling, or altering the terms of the payment of the debt in advance of the debt settlement having been completed or in advance of all the services agreed to having been rendered in full |
A "debtor" is an individual who resides in North Carolina (G.S. 14-423(3)), so the article applies to North Carolina residents wherever the company is located. G.S. 14-424 makes it a Class 2 misdemeanor to engage in, offer to engage in or attempt to engage in debt adjusting, and G.S. 14-425 lets the Attorney General or a district attorney seek an injunction against the business or the offering of debt adjusting services as an unfair or deceptive trade practice, with a receiver, civil penalties and attorneys' fees. Full text: ncleg.gov, Article 56.
Who the Law Exempts (G.S. 14-426)
| G.S. 14-426 exception | Who it covers | What it means in practice |
|---|---|---|
| (3) Creditors | A creditor or its agent adjusting debts at no cost to the debtor | Hardship plans offered by the creditor itself |
| (4) Lenders | A lender that makes or arranges a loan and disburses the proceeds to creditors without compensation for that adjusting | Debt consolidation loans |
| (6) Attorneys | An attorney licensed to practice in North Carolina who is not employed by a debt adjuster | Negotiation, lawsuit defense and bankruptcy through an NC-licensed lawyer |
| (7) Nonprofit credit counseling | An accredited agency that counsels free before enrollment, confirms the plan is suitable, sends quarterly accountings, takes no referral payments and charges only nominal consideration | Debt management plans capped at $40 setup and $40 a month |
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Federal Fee Rule vs. North Carolina's Rule
| Question | Federal rule (16 CFR 310.4(a)(5)) | North Carolina (G.S. 14-423) |
|---|---|---|
| When can a settlement fee be collected? | After at least one debt is settled and the customer has paid under that settlement | A fee received in advance of the settlement being completed or in advance of all agreed services being rendered in full is debt adjusting |
| Who does it apply to? | Debt relief services sold by telemarketing | Anyone engaging in or offering debt adjusting to a North Carolina resident |
| What happens on a violation? | FTC and state enforcement; civil penalties | Class 2 misdemeanor (G.S. 14-424); injunction, receiver and civil penalties (G.S. 14-425) |
| Is there a license? | No federal license | No — the statute prohibits with exceptions |
Meeting the federal rule does not make a service lawful under North Carolina's statute; 16 CFR 310.7(b) leaves state officials free to proceed under state civil or criminal law. The North Carolina Department of Justice states that it is illegal under North Carolina law to collect any upfront fee for debt settlement services, and it advises residents to avoid companies, including out-of-state lawyers, that offer to eliminate or cut debts by negotiating with creditors (NCDOJ, Getting Out of Debt).
Pending Bills: H 734 and S 491
Two bills in the 2025-26 General Assembly would change this framework. House Bill 734, Modernize Debt Settlement Prohibition, passed the House 112-0 on April 16, 2025 and was referred to the Senate Rules Committee on April 28, 2025. Senate Bill 491, the NC Debt Settlement Services Act, would license, examine and regulate debt settlement services under the Commissioner of Banks; it was referred to Senate Rules on March 26, 2025. As of September 17, 2026, neither bill has become law.
Collection Protections: Time Limits, Wages and Exemptions
| Protection | North Carolina rule | Source |
|---|---|---|
| Statute of limitations — contract debts (credit cards) | 3 years | G.S. 1-52(1) |
| Wages | Earnings from the 60 days before a court order are protected when needed to support the debtor's family | G.S. 1-362 |
| Residence exemption | $35,000 (up to $60,000 for certain unmarried debtors 65 or older) | G.S. 1C-1601(a)(1) |
| Motor vehicle exemption | $3,500 in one vehicle | G.S. 1C-1601(a)(3) |
| Debt collection conduct | Federal FDCPA plus North Carolina collection statutes | 15 U.S.C. 1692; G.S. 75-50 et seq. |
Key Terms
- Debt AdjustingNorth Carolina's statutory term (G.S. 14-423) covering paid debt distribution programs and, where fees are taken in advance, debt settlement.
- Debt SettlementNegotiating with creditors to accept less than the full balance, typically via lump-sum payment.
- Nominal ConsiderationThe fee ceiling for a qualifying nonprofit debt management plan: $40 setup and 10% of the monthly payment, up to $40 a month (G.S. 14-423(3a)).
- Statute of LimitationsWindow during which a creditor can sue to collect. In North Carolina, 3 years for contract debts (G.S. 1-52).
- Debt Management PlanStructured repayment through a nonprofit credit counseling agency, often at reduced interest rates.
- 1099-CIRS form issued when a creditor forgives $600+ — the forgiven amount may be taxable income.
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Where North Carolina Residents Can Get Help
| Resource | What it offers | Link |
|---|---|---|
| NC Department of Justice, Consumer Protection | Consumer complaints about debt relief companies and collectors; toll-free within North Carolina at 1-877-5-NO-SCAM. Its Getting Out of Debt page covers the state's settlement and credit counseling rules. | Visit Site → |
| National Foundation for Credit Counseling (NFCC) | Finder for nonprofit credit counseling agencies; the NC Department of Justice lists 1-800-388-2227. The G.S. 14-426 exception for debt management plans applies only to accredited agencies. | Visit Site → |
| NC Bar Association Lawyer Referral Service | Referrals to NC-licensed attorneys by phone or online request. Participating attorneys offer an initial 30-minute consultation for $50. | Visit Site → |
| North Carolina State Bar | Lawyer disciplinary records and guidance on choosing a lawyer (the State Bar regulates attorneys; it does not run the referral service). | Visit Site → |
| CFPB | Federal complaints about debt collectors and debt relief companies. | Visit Site → |
Frequently Asked Questions — North Carolina Debt Settlement Law
Is debt settlement legal in North Carolina?
North Carolina restricts it. Under G.S. 14-423 and 14-424, debt adjusting is a Class 2 misdemeanor. The definition covers debt settlement where the company takes a fee before the settlement is completed or before all agreed services are rendered in full, and programs that receive a debtor's money to pay creditors. North Carolina has no license or registration for debt settlement companies. The exceptions in G.S. 14-426 include NC-licensed attorneys who are not employed by a debt adjuster, and accredited nonprofit credit counseling agencies whose debt management plan fees stay within $40 to set up and 10% of the monthly payment, capped at $40 a month. The NC Department of Justice tells residents to avoid companies, including out-of-state lawyers, that offer to cut debts by negotiating with creditors. This summary is research, not legal advice.
Does North Carolina license debt settlement companies?
No. G.S. Chapter 14, Article 56 is a prohibition with exceptions, not a licensing scheme, so no North Carolina license or registration makes a debt settlement company lawful. Senate Bill 491 (2025-26) would create a licensing system under the Commissioner of Banks, but as of September 17, 2026 it remains in the Senate Rules Committee and is not law.
How is North Carolina's fee rule different from the federal rule?
The FTC Telemarketing Sales Rule (16 CFR 310.4(a)(5)) bars a debt relief fee until at least one debt has been settled and the customer has paid under that settlement. G.S. 14-423 is broader: a settlement fee received in advance of the debt settlement having been completed, or in advance of all agreed services having been rendered in full, makes the service debt adjusting under North Carolina law.
Who is exempt from North Carolina's debt adjusting law?
G.S. 14-426 exempts a debtor's full-time employee, people acting under a court order or other law, creditors and their agents working at no cost to the debtor, lenders disbursing loan proceeds without a fee for that service, casual adjustment by someone not in the business, NC-licensed attorneys who are not employed by a debt adjuster, and accredited nonprofit credit counseling agencies that meet the statute's conditions, including free counseling before enrollment and fees within $40 setup and $40 a month.
What is the statute of limitations on credit card debt in North Carolina?
Three years for an action upon a contract under G.S. 1-52. After the period runs, a creditor that sues can be defeated if the time limit is raised as a defense in court. A payment or a signed written acknowledgment can affect when the period runs (G.S. 1-26). The debt can still appear on a credit report for up to 7 years from first delinquency under federal FCRA rules.
Can wages be garnished for credit card debt in North Carolina?
North Carolina protects a debtor's earnings for personal services from the 60 days before a court order when those earnings are needed to support the debtor's family (G.S. 1-362), which in practice shields most wages from ordinary consumer creditors. Obligations such as child support, taxes and federal student loans follow separate rules.
Where can North Carolina residents report a debt relief company?
The NC Department of Justice Consumer Protection Division takes complaints (toll-free within North Carolina at 1-877-5-NO-SCAM), and the CFPB takes federal complaints about debt collectors and debt relief companies.
Sources
- N.C. General Statutes Chapter 14, Article 56 (G.S. 14-423 to 14-426) — Debt Adjusting
- N.C. General Statutes G.S. 1-52 — three-year limitation on contract actions
- N.C. General Statutes G.S. 1C-1601 — exempt property
- NC Department of Justice — Getting Out of Debt
- 16 CFR Part 310 — FTC Telemarketing Sales Rule
- NC Bar Association — Lawyer Referral Service
- NFCC — Find a Nonprofit Credit Counselor
Data & tools used in this analysis
