How Does a Debt Settlement Law Firm Work?

I have been working in the debt settlement industry for almost ten years now and have very extensive knowledge as to how it works. Before we begin I want to say this will be a rather long article and if you are not serious about finding a solution to your debt problem then stop reading now. The purpose of this article is to explain to you first how debt settlement works and what the process entails; both the good and the bad. Next I will explain the differences between how a debt settlement law firm works and how it compares to a standard debt settlement company. There are many differences between how this process is handled by the two. Because of this debtors should learn these differences before enrolling into any program. Many people may already know how a debt settlement company works but have no clue as to how a law firm works and this article will explain just that.

First of all, I would like to state that debt settlement as a means of credit card debt relief is not for everyone; some people simply do not have the right state of mind, while others may benefit more from bankruptcy.

To begin with I would like to go over the purpose of credit card debt settlement and how the process works. The purpose of debt settlement is for the debtor to get out of debt quickly without having to file bankruptcy and save a lot of money in the process. The goal of the debt negotiator is to negotiate a one time lump sum payment on the debtors’ behalf at a far reduced amount than what the debtor currently owes.

These benefits are tremendous. The debtor could save themselves close to half of what they currently owe and be out of debt in a few years. However as with most things in life there are drawbacks to this process and there is no way to avoid them.

In order for any creditor to be willing to negotiate a debt settlement on a debt the account must fall into default first. There are no creditors in the world willing to negotiate when you are current and up to date on your monthly minimum payments. If they feel you can maintain your monthly minimums than this is precisely where the creditors want to keep you. This is where their profit is made, by just paying the minimum each month you will be in debt for over thirty years, even if the interest rate is not all that high. If your rate is above 20%, you will be stuck in debt for well beyond thirty years and payback the creditors well over ten times the original balance alone in interest. That is exactly where they want you!

So understandably they will not negotiate with you when you are current and they feel they can still bank on your minimum payments for years to come. So the only way to ever negotiate is to fall behind on the monthly payments. Naturally once you do this you will be negatively affecting your credit score and will also be receiving calls from collectors; this is what may put some people off from doing debt settlement, thus why I stated above this process may not be for everyone.

For those people already behind this will not make a difference and their credit will not be damaged any more than it already is, however for those who are current this will adversely affect their credit. It is quite a shame that this point alone may stop some people from using debt settlement; thus dooming them to being financial servants to the creditors for decades to come.

You must also be made aware that this process in the end will begin to help rebuild your credit. Thirty percent of your MyFICO credit score is made up of your debt to credit ratio, which will look a lot better after you get out of debt. Additionally the negative remarks from falling behind will not hold much bearing on your credit score after two years. Your credit score is only a snapshot in time and only uses the last two years of payment history to determine the score.

Now during the process of falling behind your goal is to save up as much money as possible in the quickest possible time. This money is then used later on to pay off the settlement that is negotiated by the debt negotiator. The faster someone looks to save money and complete this process the better for many reasons. For one the faster you are out of debt the more money you stand to save and the less risk you take from the negative aspects of settlement such as lawsuit and further damage to the credit report.

This brings us to the title of the article “How Does a Debt Settlement Law Firm Work?” As I explained above there are great benefits to debt settlement such as saving lots of money and time; and there are also some downsides such as collection calls and the possibility of a lawsuit.

The main differences between how debt settlement is handled by a debt settlement law firm and standard debt settlement company is how they deal with the negative drawbacks. A law firm has much more legal power and is set up correctly to comply with their states’ laws.

Collection Calls

One of the first major differences in how debt settlement is handled has to deal with collections calls. When you first fall behind and your debt is still in the hands of the original creditor there is nothing legally that can be done to stop them from calling. However once the creditor passes the account off to a third party collection agency which will happen anywhere between 3-6 months after falling behind things change. Legally once in the hands of the collectors a law firm will have the power to have all calls to their client stopped, and if the collector continues to call and harass the client legal action can be taken against that creditor seeing as they will be in violation of the FDCPA (Fair Debt Collections Practices Act).

So the client’s first advantage by using a law firm will be a much decreased activity in collection calls, and this is very important for some people. Any regular debt settlement companies that claim they can stop the calls are simply not telling you the truth and you should be very weary of them because of this.

Lawsuits

The next major advantage a law firm has concerning debt settlement is how a lawsuit can be handled. In case you are not aware once you fall behind on your credit card debts the creditors/collectors do hold the legal right to pursue you through the courts to collect the debt. However I will mention, that suing is not the mainstay of the collectors and is not exercised very often; reason being it simply costs too much money and time on the creditor’s behalf with no guarantee of getting any money even if they were able to obtain a judgment anyway.

The advantage the law firm has is they can still legally contact and negotiate a settlement with your collector after they have issued a summons to court. A debt settlement company does not have this legal power. The collectors are very willing to negotiate a settlement even after the summons has been issued; they realize they may get very little if anything regardless, so being contacted by a reputable law firm who is willing to offer them money and settle the debt without wasting any time or money with going to court is very beneficial to the collector.

If you get sued and you only have a standard company representing you, you can expect to go to court and try to figure it out yourself. This often results in a judgment for the debtor!

Correct Legal Set Up

Perhaps the biggest advantage the law firm has over a company is how they are set up. The vast majority of debt settlement companies are not legally allowed to work in all the states; many are not even set up correctly to operate in their own state.

The states’ attorneys and the FTC (Federal Trade Commission) are cracking down severely on these companies and shutting them down as fast as possible. When this happens often times the company does not have the money to payback its clients for the fees they paid to a company that will no longer be in business and can no longer help to settle their debts. Now the debtor will be left holding the bag having paid thousands in fees but still be stuck in debt, and this nightmare scenario happens more than you may think. Thus making law firms a much, much safer option!

Another issue that many people have with debt settlement companies is they will not disclose how this process works and will simply sugar coats things and preach about the great benefits but never mention one downside. A law firm legally must disclose everything about how this works before being able to enroll anyone into any structured payment plan. A lot of companies do not have your interest at heart and will say whatever it takes to get you signed up even if they are fully aware that they are setting you up to fail.

Which brings me to my last point; a lot of unscrupulous companies will allow their clients to sign into a program and pay whatever they want and put them into programs that are set up for much longer than they should be. By stretching a debt settlement program out the savings will decrease and the potential for a lawsuit will increase. These companies cannot legally give the client advice or assistance if they get sued; it is considered unlicensed practice of law and this is what I mean by them knowing they will be setting you up to fail. If you can’t get this process done within three years, four max in special situations, then you should seriously consider bankruptcy. A law firm will be strait up and tell this to you, where many shady companies will keep trying to sign you up.

I really hope after reading this article you feel enlightened and now have a much better understanding of how debt settlement works and how a law firm can advantage you the most. I know for the most part I have been focusing on the negative aspects of debt settlement, but I feel it is important for people to understand both the good and the bad, allowing them to make an educated wise financial decision on how to get out of debt. But you must realize just how powerful the benefits of this process are! Saving close to half of what is currently owed and becoming debt free in a few years will be so beneficial to your current and future financial well being. Credit card debt has a way of destroying people’s finances and their lives and debt settlement is the perfect alternative for those who want to escape debt quickly and avoid the embarrassment of filing for bankruptcy.

If you are curious as to whether using a debt settlement law firm can benefit your financial situation then I invite you to follow the link below in the signature box and fill out an application. I welcome the opportunity to review your personal and unique situation to see if debt settlement will be the right fit for you.

 

Debt Settlement Attorney – Do You Really Need One? Find Out The Truth!

I have been in the credit card debt relief industry for over a decade now, and have seen many changes take place; some changes that benefit consumers and some that do not. In this article I will discuss the legitimacy, or lack thereof, of the “debt settlement law firm” approach to getting out of debt. Many recent changes in the debt settlement industry have made consumers very confused; this article will open your eyes to the truth of the matter. A fair warning up front this is going to be a long and informative article, so if you’re not honestly serious about finding a solid solution to your debt problem then stop reading right now.

Recent FTC Changes

On October 27th 2010, the debt settlement industry was turned upside down by some major changes that the FTC (Federal Trade Commission) had put into place. These implementations by the FTC will change the way debt settlement companies can conduct business forever; and actually are a benefit to the consumer who understands them correctly.

There were two major changes, the first is the advance fee ban, and the second is full disclosure; both being very important topics to understand.

Let’s first examine the Advance Fee Ban so you have a good understanding why this was implemented and what it has done to the industry as a whole. The FTC stepped up to take action against the settlement industry after years of complaints from consumers about being ripped off and scammed. Many companies were run by people, who had their own pockets in mind first, not the debtor who needs help.

What attracted so many businessmen to the debt settlement industry was the ability to make quick money with very little work. Prior to the FTC changes companies were allowed to charge their entire settlement fee prior to ever even contacting a creditor to negotiate settlement. Needless to say this caused many problems, and untold numbers of naive consumers were paying large fees upfront only to have the company never finish the job; therefore leaving them in a much worse situation than they were already in.

After years of fielding complaints the FTC finally came down and made it illegal for debt settlement companies to charge fees prior to settling. This is great news for consumers, greatly reducing the risk of entering a debt settlement program; at least where losing upfront fees are concerned.

However for the majority of companies in the industry this was TERRIBLE news; but for the legitimate and business savvy companies it is actually GREAT news. It was bad for all the “scammer” operations; no longer could they just blatantly rip people off, now they had to EARN their money by negotiating good settlements for their clients. Almost overnight you saw over 90% of companies bow out of the industry. Even some honest companies stepped down, simply because they did not have enough operating cash flow to continue conducting business without charging their fees upfront.

For the honest, sound companies in the industry this was good news, because:

A) Now there are legal teeth (FTC regulations) to rid the industry of bottom feeding “scam” companies.

B) It means less competition for them; allowing them to focus on what they do best, save people money and get them out of debt quickly.

The second major implementation on behalf of the FTC was “Full Disclosure”. Full disclosure simply means that a representative of a debt settlement company must:

A) Explain all of the various debt relief options available to consumers, not just debt settlement.

B) Fully disclose both the pros and cons of the debt settlement process.

The issue was that many company sales reps would simply lie, or conveniently not inform potential clients about the negative aspects to the settlement process such as: potential lawsuit, creditor harassment, negative credit ratings and that the creditors were not getting paid until settlement (some companies actually deceive people into thinking they are staying current with their creditors during a debt settlement program).

So you may be wondering at this point where I am going with all this and what it has to do with “debt settlement attorneys”, just continue on and you will be enlightened.

The Law Firm Fee Loophole & Deceiving Spin!

At this point in time the only way for a debt settlement company to collect a fee for their service is after they reach a negotiated settlement on behalf of their client; and this is the way fees should always have been collected, and thankfully is now the only way to be collected.

However, law firms and attorneys have found a way around this…..for the moment at least. As of right now it is still legal for a “debt settlement attorney or law firm” to collect their fees before they settle your debt. Keep in mind they are not debt settlement companies so therefore the FTC rulings have not affected them yet.

The majority of attorney settlement model programs are very expensive, often times charging a percentage of the overall debt amount a client owes and a percentage of the amount of money saved when the settlement is reached; typically costing more than a settlement company’s fee.

There are a few things you must realize about what a debt settlement law firm is trying to sell you on to justify collecting large upfront fees. First they give you the impression that they can actually represent you in court if a creditor were to file suit against you, and second many “claim” to be able to stop collection calls.

For starters if you are being sued by a company outside the state the attorney practices in then they cannot defend you, they can simply refer you to another law firm (by which of course you must pay more legal fees to be defended). Second even if the creditor is in your state the law firm in the vast majority of cases will charge you additional fees to appear in court; making the fact that you paid extra legal fees upfront mean basically nothing.

Additionally while some law firms do send out letters to your creditors to help stop harassment, they cannot actually guarantee you that the calls will be stopped. It’s really as simple as that, one of the downsides to debt settlement is creditor harassment; no true way to completely avert that exists.

Now the deceiving spin many sales reps are saying to naive consumers is that their “attorney settlement program” is the only legal approach to a debt settlement program. Which to say the least can be very confusing to consumers, oftentimes paralyzing the consumer with fear of doing anything; especially if they do not have the money to pay the law firm up front.

This is very deceptive of these firms; the only truth in their statement is that they are the only entity who has the LEGAL ability to TAKE YOUR MONEY up front before they settle your debt, and that is the only truth in that statement!

So What Can You Do?

This news may very well leave some people feeling even more lost and unsure about what move to make to alleviate a terrible debt situation. Fortunately I have a few solutions that I can present to you.

The first is an answer to the problem of lawsuit. The majority of people who do sign up with a law firm do so because they feel they are getting some legal protection; therefore eliminating perhaps the single biggest downside to debt settlement.

The reality is lawsuits are a possibility; the creditor has the right to sue for a past due account. The truth is that by far the majority of people going through settlement do not actually get sued; simply because the creditors do not have enough time and money to pursue all the people who owe them money. And the reality is oftentimes even when they do receive a judgment it is still impossible to collect money from some people; the old adage goes “can’t get blood from a rock“.

Also keep in mind each state has different laws concerning how collectors can pursue lawsuits for credit card debt; with some states like Texas having very debtor friendly laws in place, while others like Georgia do not. BUT there is another solution that enables a debtor to take advantage of the FTC rulings with no upfront fees and still have affordable true legal protection.

This solution is “debt settlement insurance”. Some debt settlement companies can refer you to other institutions that can offer an insurance protection program (not available in all states). These plans are typically very affordable and actually provide the necessary legal protection to represent you in court to defend you against the suit; at no extra cost then what the insurance plan cost in the first place.

This really gives the consumer the best of both worlds, therefore offering them an honest way to escape credit card debt and limiting any legal repercussions; all while avoiding having to file bankruptcy.

 

Get Out of Debt for Less With Debt Settlement

The average American household has over $15,000 of credit card debt. Many of these families are struggling to make the minimum monthly payments, and some are using plastic to cover daily living expenses such as groceries, transportation costs, and medical co-pays. Despite improving economic conditions, more and more credit card users are receiving phone calls and letters from creditors that their payments are past due.

If you have too much debt and stress, now is the time to stop this destructive cycle and get the help you need from a debt reduction program. This article teaches you the principles of debt settlement, one of the most popular forms of debt relief.

What is debt settlement?

Debt settlement–also known as debt arbitration, debt negotiation, or credit settlement–is a debt relief approach where negotiators communicate with creditors on your behalf to settle your debts to reduced and agreed-to amounts. Only unsecured debt-credit cards, medical bills, and personal loans-can be negotiated. You cannot settle mortgages, rent, utility bills, cell phone and cable charges, insurance premiums, car loans, student loans, alimony, child support, taxes, or criminal fines.

Once you enroll in a debt settlement program, your negotiation team opens a trust account for you. You must deposit up to 50% of your unsecured debt into the account over a period of 24-60 months. This money is used to settle your debts with creditors. Because the average debt settlement firm is for-profit, you must also pay the company a 15-25% service charge. This fee is based on the original amount of your unsecured debt or the amount negotiated, depending on the debt settlement company.

Most debt arbitration companies use a third-party escrow service to “warehouse” the money that they will later use to fund the settlements they negotiate for you. The most common escrow company is Global Client Solutions. Sending money to your trust account is generally done through ACH on the same day each month. If your checking account is with a bank where you also have a past-due loan or credit card balance, it is suggested that you use a different bank for your debt settlement program.

Here are three things that a debt arbitration company must tell you before you enroll in their program:

1. You must be given an “upfront estimate” in writing of all costs associated with settling your debts to reduced and agreed-to amounts.

2. You must be given an “estimated timeframe” to reduce your debt.

3. You must be told that debt settlement can adversely affect your credit score.

Here are some examples of what a debt settlement company cannot tell you:

“We can eliminate 50-70% of your debt.”

“We can settle your debt to pennies on the dollar.”

“We can cut your debt in half.”

“Debt settlement will not affect your credit score.”

“Calls and letters from creditors will stop once you enroll in a debt settlement program.”

“Debt settlement does not affect your taxable income.”

“Once you join a debt settlement program, you will no longer have to communicate with your creditors.”

If you are considering debt settlement, here is what you need to know first:

1. Debt settlement will not solve your careless spending and savings habits. The only way that you will ever achieve lasting financial freedom is to apply the dynamic laws of financial recovery to your everyday life. These smart-money principles will help you to establish spending and savings habits that are built on solid bedrock. They are discussed in a separate article entitled “The Dynamic Laws of a Successful Financial Makeover.”

2. Debt settlement should not be confused with bill consolidation, another form of debt reduction. Bill consolidation-also known as interest-rate arbitration-takes your high-interest credit cards and loans and consolidates them into one, low-interest loan that you can afford. In other words, you’re taking out one loan to pay off many others. Bill consolidation does not reduce the outstanding balances that you owe to creditors. It only lowers your interest rates.

3. One of the primary reasons that people choose debt arbitration is to avoid filing for bankruptcy protection. Here are five reasons why the consequences of bankruptcy can be overwhelming:

Bankruptcy stays on your credit report for 10 years and adversely affects your credit score.

Bankruptcy will follow you for the rest of your life. For example, many loan, credit card, and job applications ask if you have ever filed for bankruptcy protection.

Bankruptcy cannot eliminate alimony and child support obligations as well as criminal fines.

Except in very limited circumstances, bankruptcy cannot wipe out student loans.

Bankruptcy cannot prevent a “secured creditor” from repossessing property. According to Nolo.com: “A bankruptcy discharge eliminates debts, but it does not eliminate liens. So, if you have a secured debt (a debt where the creditor has a lien on your property and can repossess it if you don’t pay the debt), bankruptcy can eliminate the debt, but it does not prevent the creditor from repossessing the property.”

4. If your unsecured debt is $10,000 or more, debt arbitration could save you more time and money than bill consolidation. Here is why: With debt settlement, your unsecured debt is reduced by up to 50% and you will not have to pay added interest on the remaining balance. This is not the case with bill consolidation, where is there is only a reduction in interest rates. As a result, a debt settlement program can have a shorter repayment term than a bill consolidation one.

5. There is no public record that you have ever settled your debts.

6. With debt arbitration, reduced balances appear as “paid in full” or “paid as settled” on your credit report.

7. Debt settlement adversely affects your credit score.

8. Never let a debt settlement company pressure into joining their program.

9. Don’t hire a company that has no interest in your specific financial needs.

10. Before you enroll in a debt negotiation program, review your budget carefully and make sure that you can afford the monthly payments. Don’t be surprised if you have to eliminate certain nonessential expenses.

11. During the debt settlement process, calls and letters from creditors might continue. Enrolling in a debt settlement program does not automatically stop “lawful collection activities.”

12. Debt arbitration can be a gamble because some creditors might refuse to negotiate. In such cases, you are responsible for paying the outstanding balance on the creditor’s terms.

13. As we mentioned above, only unsecured debts such as credit cards and personal loans can be negotiated to reduced amounts. You cannot settle mortgages, rent, utilities, cell phone and cable bills, insurance premiums, car and student loans, alimony, child support, taxes, or criminal fines.

14. You might suffer tax consequences. For example, if you owe $25,000 and settle for $15,000, the $10,000 difference is considered taxable income. The creditor must send you a 1099-MISC reporting a “discharge of indebtedness income.”

15. A debt settlement company cannot represent you in court unless it is also a law firm.

16. Debt arbitration cannot prevent the foreclosure of your house or the repossession of your car.

17. Despite warnings from the Federal Trade Commission (FTC), some debt settlement companies still engage in unfair business practices. The Federal Trade Commission advises: “Before you enroll in a debt settlement program, do your homework. You’re making a big decision that involves spending a lot of your money that could go toward paying down your debt. Enter the name of the company name with the word ‘complaints’ into a search engine. Read what others have said about the companies you’re considering, including whether they are involved in a lawsuit with any state or federal regulators for engaging in deceptive or unfair practices.”

Here are some factors to consider when choosing a debt settlement company:

1. How long has the company been in business? How much consumer and business debt does the company manage each year? How many individuals, families, and businesses does the company counsel each year?

2. Are you assigned to an experienced financial counselor to ensure that your debt settlement program flows smoothly from start to finish?

3. Is the debt arbitration company a member of the Online Business Bureau as well as their local BBB? What are their ratings with both bureaus? What kinds of complaints have been made about their services?

4. Is the company an active member of TASC, (The Association of Settlement Companies). TASC requires that all of its members maintain a stringent set of standards in doing business with consumers and businesses.

5. Is the debt arbitration company a member of Dun & Bradstreet, the world’s source authority for business insight?

This article has taught you the principles of debt settlement, one of the most popular forms of debt relief. Although a debt arbitration program can help you to reduce your debt, it does not teach you how to live fiscally fit. The only way that you will ever achieve lasting financial freedom is to apply the dynamic laws of financial recovery to your everyday life. These smart-money principles will help you to establish spending and savings habits that are built on solid bedrock. They are discussed in a separate article entitled “The Dynamic Laws of a Successful Financial Makeover.”

Gregory DeVictor is a financial consultant and professional writer. He has published over 100 e-books and articles on debt reduction, money management, and financial planning. Gregory is also affiliated with CuraDebt, one of America’s leading debt relief companies. Over the years, he has helped hundreds of consumers to get out of debt and achieve financial freedom.

 

Debt Settlement in the Peach State

As economic difficulties around the country continue to worsen, tens of thousands of Florida consumers have reported problems with credit card accounts and bills they cannot easily pay. Unfortunately, many of these same borrowers have been led to believe that bankruptcy is their only solution to seemingly intractable debt loads, and, particularly for those Florida heads of households who have staved off external help as long as possible hoping that they could repay their debts through ordinary means, the new alternatives toward bankruptcy such as debt settlement remain unknown to the people that could best take advantage of these programs. Much as Chapter 7 debt elimination bankruptcy does still maintain some advantage for a certain sort of consumer – consumers with minimal earnings and no assets (including household furnishings) to speak of, more exactly – a host of options currently awaits the borrower who’ll spend the necessary hours researching these new strategies. Make no mistake, all Florida residents with the capacity to repay their obligations without unduly taxing their household budget should attempt to satisfy their various accounts by traditional measures. However, with the economy of Florida and the nation as a whole so tenuous at this very moment, it behooves the considerate borrower to look at every strategy and pay special attention to the debt settlement solution.

Thanks to their onslaught of television and newspaper advertisements around Florida, Consumer Credit Counseling remains the most well known of all of the debt relief alternatives, and, indeed, the program does boast lower interest rates and substantially lower payments for those Floridians who’ve signed on for their services. Still, much as the Consumer Credit Counseling programs may alleviate many of the tensions that follow from lender harassments (and their accompanying collection agencies), reduced payments and simplified statements still do not equal debt liquidation. The Consumer Credit Counseling companies’ solution only helps aid their Floridian clients suffer through their bills in the short term while the actual debt is just put aside for a later date. There will be no hope of the balance liquidation offered through Chapter 7 bankruptcy protection, and, for that matter, entrance to the Consumer Credit Counseling program also threatens other alternatives such as debt settlement since the borrower essentially admits that they could attempt to satisfy the balances on their own. Given the dramatic shifts of costs of living that exist around differing parts of Florida, Consumer Credit Counseling should be very cautiously approached. It may still be a more beneficial alternative when compared to Chapter 7 or Chapter 13 bankruptcy, depending upon the individual Florida household’s specific desires and capacities, but there’s yet every reason to look at the other possibilities now at hand.

Debt settlement, while a somewhat innovative method of satisfying unsecured loans that Florida borrowers would otherwise be unable to repay, has been around for a number of years. Through negotiation with the lenders, experienced and certified debt settlement counselors attempt – successfully, almost always, for those borrowers that the settlement companies agree to work with – to argue for a significant reduction of existing balances. The process is both legal and justifiable. Indeed, since debt settlement essentially requires the repayment of some part of the loans, Florida borrowers should consider debt settlement more ethical than the Chapter 7 debt elimination program. In the best of all possible worlds, consumers would simply be able to reduce household expenses or raise their gross income so as to pay back their lenders month by month. Alas, in these lean times (with every Florida employment market from Jacksonville to Miami dropping jobs by the bucket load), even the most conscientious borrower may need some professional assistance, and there are certainly smoother roads toward unsecured debt liquidation than bankruptcy. Once again, much as debt settlement may not seem as familiar to ordinary Florida consumers, it’s most certainly worth any debtor’s time to investigate the option.

Within debt settlement (as with Consumer Credit Counseling or Chapter 13 bankruptcy protection), there will be a schedule of repayment that asks each Florida borrower involved with the program to send their money directly to the settlement company on time each month. When first talking to the counselors, this is one of the important initial questions that Florida consumers must ask: how long will the debt settlement process take? In general terms, the professional will guarantee a schedule of no longer than five years for the settlement process in order to prime the credit card representatives for balance reductions. However, should the borrowers not demonstrate enough household income (also taking into account their other debts untouched by settlement plus whatever costs of living expenses in their area of Florida) to be able to satisfy the remaining amounts within sixty months, the debt settlement company may not be able to take them on as clients. Remember, payments must be low enough that the borrowers – with some degree of deprivation to be expected; remember, the point of debt settlement is to erase all credit card bills and similar obligations – could still maintain their household while attempting to estimate the family budget for Florida in the seasons to come. If the debt settlement company does not truly believe that the borrowers would not be able to fulfill their monthly stipend through the settlement process, they will have no choice but to deny the borrowers’ entreaties. This is yet another difference between debt settlement and Consumer Credit Counseling: CCC companies never refuse a client and have no problem whatsoever letting those clients continue along with low monthly payments (and ever accruing interest) for years and years to come.

In Florida, there is far less potential for damage to recalcitrant consumers compared to their brethren around the country. Florida’s debtor laws guarantee residents a number of liberties surrounding over due accounts which most Americans suffering through such tribulations would dearly wish to enjoy. Much as every state has their own laws preventing creditors and collection agents from unfair harassment of borrowers, Florida specifically forbids lenders from any communiqu├ęs with their clients once a Florida resident signs a “cease and desist” notice and mails the notice to the appropriate parties. Even beyond the automatic stay granted those consumers filing for bankruptcy or the leverage that an attorney may grant, merely providing formal notification of the desire to avoid correspondence or communication with the creditors will mean that Floridians are legally protected. Furthermore, the state of Florida has enacted statutes which – for the most part – utterly vouchsafe the home and the wages of borrowers who cannot otherwise repay their creditors. Much as these laws serve as an aid to Florida consumers attempting to satisfy their loans one payment at a time, the statutes also aid the debt settlement process since the lenders have more to lose should they continue to force the issue. There’s always a chance of legal action, still, no matter the legislative safeguards, since creditors are reserved the option for law suits to recover their funds, but Floridian consumers have far more opportunities for debt settlement negotiation from positions of strength.

Every debt settlement company shall demand some money for their services, but the overall fees could differ greatly from program to program. Annual administrative fees are fairly common place, there are bills to be filed, but a few of the less reputable companies add on monthly expenses. None of these extraneous charges should be particularly large or notable, but they accumulate over time and are signals of other potential concerns. Florida borrowers should keep in mind that they will want to investigate each debt settlement business thoroughly before signing along with their program. Any sincere exploration of debt relief programs, whether Consumer Credit Counseling or debt settlement or another approach, depends upon both the reputation of the companies and the level of trust that the consumer may or may not develop with the counselor they will be working with. Contact the local chapter of the Better Business Bureau and the Florida state attorney general’s office to see if there are any complaints from past customers. Check on line to try and suss out the company’s reputation. In truth, since the debt settlement industry remains a fairly recent endeavor, many Florida consumers have utilized the internet and found remote debt settlement firms that did just as good of a job (often, at reduced costs) as the store fronts larger cities may offer.

There are, of course, expenses to be paid. Florida consumers shall find disadvantages with any such program that intends to carve away financial obligations already spent. Borrowers accepted into the debt settlement system will find harmful consequences as to credit ratings and FICO scores though they will be much less dramatic than what would be felt from bankruptcy protection. Furthermore, lenders could always call the debt settlement counselor’s bluff and initiate legal actions for seizure of property or wage garnishment, and, without the automatic stay guaranteed by bankruptcy protection, representatives of the creditors – or, worse, the collection agencies they’ve hired – may continue to harass and threaten borrowers for payment. The debt settlement solution does not guarantee success. Furthermore, the debt settlement program will not do away with Florida borrowers’ past credit problems. Anything that the three credit bureaus (Equifax, TRW, and TransUnion) have recorded upon the borrowers’ histories shan’t be easily removed unless the information could be proven false. A few years ago, the United States congress passed the Fair Credit Reporting Act which was intended to ensure that all data documented on the credit reports would be demonstrably accurate and that lenders which could not back up the black marks they had presented to the credit bureaus must withdraw their notations. Unlike Chapter 7 or Chapter 13 bankruptcy protection, which can stay upon a credit report for as long as a decade, negative payment records only last for seven years, and, while debt settlement does not score the same as a defaulted loan, there’s still repercussions from debt settlement as to FICO scores.

This is an important distinction. While the debt settlement company shall dole out funds to the creditors, the primary responsibility – the entire responsibility, in the eyes of the law – for the actual debts falls to their clients. In many ways, this should be considered an asset for Floridian consumers, and this is one of the reasons that debt settlement solutions are better received in terms of credit ratings and FICO scores. Since Florida debtors retain liability for their credit card debts and other unsecured obligations covered under the debt settlement negotiation process (unlike the Chapter 13 discharge or effective default that Consumer Credit Counseling engenders), they gain positive points within the vaguely understood Fair-Isaacs scoring system which all of the three credit bureaus employ for every payment made on time. However, while that aspect of the debt settlement program should certainly be seen as positive, Florida residents must remember that – since the responsibility for the obligations remains their own – they need check up on the settlement company to make sure the bills paid arrive promptly. Even the most respected of debt settlement firms shall occasionally make a mistake, whether from computer malfunction or lender schedule alterations notated too late, and it’s up to the individual Floridian to talk to the credit card representatives and discover whether or not the payments are being made. For that matter, though this should seem common sense, Florida borrowers would also be wise to ensure that the reductions of interest rates and balances promised from the debt settlement company are seen on the actual statements.

The effectiveness of debt settlement negotiation depends upon a shared realization between the lenders and the debt settlement professionals about the looming possibility of bankruptcy protection. After credit card accounts or similar unsecured loans have turned delinquent, lenders have a set variety of what they could reasonably do in order to recover their funds. Fees accrue, of course, interest rates escalate (sometime exponentially), and negligible minimum monthly payments become unfathomable burdens. Remember, despite their many threats, the lenders would much prefer that the borrowers would simply repay what’s owed rather than having to go through the trouble and expense of fighting a case in the Florida courts. Delinquencies, though there are tax breaks involved, help no one: the lenders won’t get paid and the borrowers’ credit ratings are effectively destroyed. If at all possible, the credit card companies will want to try and work out a payment schedule that their clients can afford, and, if it seems that Chapter 7 debt elimination bankruptcy would be attempted, the creditors will jump at the chance to negotiate a debt settlement alternative even if they have to give up more than a third of the funds owed. After all, even if they end up asking for only forty or fifty percent of the original balances, the guarantee – or, at least, the word of a respected debt settlement company – of some money is better than nothing.

It’s important for consumers to maintain cordial relationships with their lenders, but Florida residents should also remember that representatives of the credit card companies have a vested interest in keeping their clients paying interest rates for as long as they could. The credit card conglomerates will have their own form of consolidation programs with lower interest, perhaps even offering minimal cuts to balances, but they will virtually never be the best alternative available for unsecured debt elimination. No matter how friendly the lender reps may seem, they’re hardly likely to discuss other sources of relief: debt settlement, especially. For ordinary Florida consumers, the debt balances themselves should be considered beyond negotiation. Credit card companies will not soon bend down to the demands of Florida consumers without professional representation. Unless the lenders are convinced that their competitors are ceding precisely the same percentage of funds owed, they have no reason to do more than shrug away past over limit fees and vaguely lower their interest rates. Much as debt settlement negotiation may seem like more of an idea than a craft, creditors need to know both that a reputable company honors their clients’ promise of repayment and that all lenders shall be treated equally. To this point, it may even be necessary for Florida consumers to intentionally skip payments so that their debt settlement counselor could have proper leverage for the eventual negotiations. This shall hurt any Florida borrower’s credit scores in the short term, true, but – should the debt settlement company shave off nearly half of their clients’ debt load through a series of phone calls – the savings should be certainly worth the temporary reduction of credit scores.

Of all the financial strategies borne upon the diminishing impact of bankruptcy protection in the modern world, debt settlement seems to have met the most success for aggrieved Florida consumers struggling with credit card burdens. Still and all, there are warning signs to be avoided. Every debt settlement company shall demand some money for their services, but the overall fees differ greatly from program to program. Annual administrative fees are fairly common place, there are always bills to be filed, but a few of the less reputable companies add on monthly expenses. None of these extraneous charges should be particularly large or notable, but they accumulate over time and are signals of other potential concerns. There’s so much to be analyzed before any decision should be made by a Florida household attempting to juggle their debt obligations against prospective earnings. For home owners absolutely convinced that they will soon receive sufficient money to cover their accumulated bills, equity loans – despite the plunging Florida real estate markets – may genuinely be a worthwhile solution. Certainly, for borrowers that have weathered genuine calamities and have no assets worth protecting, Chapter 7 bankruptcy remains a much needed port against the creditor storm. Given the space constraints of an article such as this, there’s just no way for your authors to pretend that they could honestly advise any Florida borrower of the most beneficial debt liquidation maneuvers without taking a close look at their financial standings.

At the same point, while so many Florida residents fight against their mounting bills, relief from credit card bills has become a necessity for any consumer who does not believe he or she could easily eliminate their amassed unsecured burdens within a reasonable amount of time. Considering the state of the economy (and the nature of compound interest), there’s no reason Floridian borrowers should presume that their debts shall grow more manageable without a decisive strategy and the assistance of professionals trained in the practice of financial solutions. As should be clear from the paragraphs written above, we believe debt settlement – for those Florida consumers who can show enough demonstrable income and the right sort of debt (some credit card companies yet resist the program) – to be the gold standard of all of these programs, but it will be left to the individual borrower to discover for themselves what shall work best for their own household. No debt scenario is alike. Some Florida borrowers found themselves in this predicament through thoughtless spending beyond their means while others, struck by medical emergencies or familiar distress, simply had no other choice. As we have written, there’s as many different debt solutions available to Florida residents as there are debt portfolios, and, much as we strenuously recommend the debt settlement option, every consumer must inevitably speak to a professional debt analyst themselves.

 

Debt Settlement – Do it Yourself!

Under a debt settlement arrangement your creditor agrees to accept a lump sum payment of less than your account’s balance to resolve fully your debt. If you have a bundle of cash, debt settlement is a legitimate option for taking care of high-interest, unsecured debts.

But don’t hire anyone or any company to settle your debts. You can effectively settle debts yourself. Debt settlement company fees are high and generally non-refundable. If a settlement company can persuade one of your creditors to take less than the full balance to resolve a debt, then so can you.

What Debt Settlement Companies Do
A debt settlement company claims it will, for a fee, persuade your creditors to take as little as half of what you owe to resolve your debt. Sounds good! Since you probably don’t have a bunch of cash laying around, you’ll pay the debt settlement company a series of monthly payments. First, know that typically your payments go 100% toward the settlement company’s fee until the fee is paid. Only after the fee is paid do you start building a settlement fund. When you’ve built up enough in your debt settlement account, the company will try to settle one of your debts.

Here’s the Catch
Your creditors have agreed to nothing. During the many months you are making payments to the debt settlement company, the creditors you’ve been told will settle are starting or continuing aggressive collection activity. You get phone calls and letters and worse, and you could be sued and face garnishment while the debt settlement company is holding your money. Telling creditors that you’ve signed up for a plan with Settlements-‘R-Us, Inc. and are making monthly payments will carry no sway whatsoever with your creditors. They won’t care. To avoid garnishment, you could be forced into bankruptcy. You can get back from the debt settlement company the money in your account, but the fee you’ve paid is probably gone forever, even if the company didn’t settle a single debt for you.

The moral of this story? Never consider signing up with a debt settlement company unless you get from each creditor involved a document, on the creditor’s letterhead, that states the creditor will accept a specific dollar amount on a specific date in the future to totally resolve your debt, AND, in the meantime, the creditor won’t pursue collection of the debt.

If you do have a lump of spare cash, you should consider doing your own settlement, along with other options, to pay off unsecured debts. Keep the following in mind:

  • You need an Emergency Savings fund. Don’t use every spare penny you can scrape together to settle a debt and leave yourself vulnerable.
  • It’s a poor idea to withdraw money early from a retirement account to pay toward debt.
  • If you settle a debt, the creditor will probably report the amount “forgiven” to the IRS. The IRS considers forgiven debt to be part of your income, and you likely will owe income tax on it on April 15th of the next year. Your debt settlement strategy must include a plan for having the cash to pay the tax on the forgiven debt. You don’t want to come out of a debt settlement with new IRS debt.
  • Because you would be repaying less than the full amount due, debt settlement has a much worse impact on your credit score than any method that would result in full repayment of the debt, like a Debt Management Plan. After a debt settlement is done, your credit report should show the settled debt balance as $0, but may also show a notation-the exact wording is negotiable-to the effect of “less than full balance paid.” This notation may stay on your credit report for up to seven years after settlement.

With Those Cautions in Mind, Here’s How to Settle a Debt

  1. Understand the source of your power in the settlement negotiation: You may not pay the debt at all. Before any creditor will agree to settle a debt, it must be convinced it will be better off accepting 40% or 50% of the total balance today instead of trying to collect 100% of the debt over many future months or years. This means few creditors will negotiate a debt settlement until the account is seriously past due and successful collection is clearly, from the creditor’s point of view, in doubt.
  2. If you reach a settlement agreement, the creditor will want the payment in a lump sum right away. Don’t start settlement negotiations until you have in hand the cash you’ve decided you can spare for debt settlement.
  3. Write a letter to the creditor proposing a specific settlement. You can find many example debt settlement letters on the Internet by searching “debt settlement example letter.” Photocopy for your records this and all correspondence with the creditor. Send all creditor correspondence by certified postal mail, delivery receipt requested. E-mail is not acceptable.
  4. What dollar amount should you propose as a settlement? There is no pat answer to this question because it depends on the situation. The more severely delinquent the debt, the less the creditor is apt to settle for. The lower the creditor judges the odds of collecting the debt in full, the less the creditor is apt to settle for. If you’ve missed two payments on a credit card debt, the credit card company is unlikely even to engage in settlement negotiations, period. But if you stopped paying on a credit card debt two years ago and the credit card company has charged off the debt and sold it to a collection agency, and you’ve paid the collection agency nothing and ignored their collection letters and calls, and your credit score is in the dumps, you may find the collection agency willing to agree to a settlement very favorable to you. Most settlements end up at 40%-60% of the original balance. As with any negotiation, you’ll want to leave room to improve your offer, so in most cases it’s probably smart to offer less than 40% of the balance.
  5. Say you’ve decided you have $3,000 of spare cash you can devote to settling a $6,000 debt. Start negotiations by offering less than $3,000, perhaps $1,500 or $2,000. If the creditor counters your offer with $4,000, you can, if you choose, improve your offer to $2,500 or $3,000, but don’t offer or agree to a settlement over the $3,000 you’ve decided you can spare. If the creditor won’t budge, politely end the negotiation by inviting the creditor to re-contact you by letter if it reconsiders.
  6. If a creditor answers your offer letter by telephone, make detailed notes of any proposals made in the phone call and include in your notes the date, time, and caller’s name and employee ID number. Agree to nothing on the telephone. Even if a verbal counter offer is acceptable to you, tell the caller you need the offer in writing before you will agree to it. If the creditor refuses to make the offer in writing, tell the caller you will not agree to any settlement that’s not documented in writing, and politely end the call with an invitation to the creditor to re-open negotiations with a letter specifying all terms of its settlement offer.
  7. Do not agree to any settlement offer unless it’s in writing and 1) names the dollar amount agreed to; 2) names the date by which the settlement amount must be received by the creditor; 3) states that the creditor agrees that this dollar amount will fully resolve the debt and it will not pursue further collection; 4) states the creditor agrees to report the account balance as $0 to all credit bureaus that include the debt on your credit report; 5) includes the exact wording of the notation, if any, that the creditor intends to send to the credit bureaus indicating less than full repayment.
  8. Once you have in hand a written settlement agreement acceptable to you, make the settlement payment promptly, by cashier’s check or money order and keep the receipt that accompanies the check or money order. Send the payment by certified mail, and be sure to get a receipt from the postal service indicating the date of delivery to the creditor. Don’t cut it close-mail your payment at least 15 days prior to the due date in your settlement agreement.
  9. Follow-up: Get every four months your free annual credit report from one of the three reporting bureaus. Examine closely each of the three free credit reports you’ll get over the next year. If the settled debt still appears, the balance should be $0. If the creditor agreed to specific wording for any notation that appears with the debt record, you should see only that wording.
  10. If the creditor fails to live up to the written settlement agreement, don’t waste your time contacting the creditor. Instead immediately pursue resolution by following the Federal Trade Commission’s procedures for disputing information on your credit report. Your evidence is the written settlement agreement from the creditor, your cashier’s check or money order receipt, and the postal service receipt showing the date the payment was delivered to the creditor.

Finally, nothing above is legal advice. Consult an attorney to assure a legally binding, watertight settlement agreement with a creditor.