Debt Settlement
Debt settlement is one option for the consumer struggling to repay debt. Unlike the debt solutions offered by bankruptcy laws and most credit counseling agencies that either arrange a repayment schedule or liquidate all assets, debt settlement resolves the debt in full by negotiating a reduced lump sum payment with creditors. Global Debt Systems trains debt settlement professionals in the process and negotiation strategies that can help their consumer clients with defaulted loan and credit card balances become debt-free within 12 to 36 months. Debt settlement can reduce the client’s outstanding balance as much as 35% to 65% without incurring the financial stress and worry of meeting a new minimum monthly payment schedule.
Debt Settlement as an Alternative to Bankruptcy
For many consumers, bankruptcy is a viable solution to their debt problems; for others, it can be more trouble than its worth. For instance, under a Chapter 7 bankruptcy filing, the consumer agrees to liquidate all non-exempt assets, which may include homes, cars, furniture, tools, and other personal belongings, to satisfy creditors. It is very disruptive. On the other hand, under a Chapter 13 bankruptcy filing, the consumer agrees to a repayment program that authorizes his wages to be garnished for up to five years. His worries may be smaller, but they are still there. Debt Settlement is ideal for individuals who can budget their way out of debt. By reducing the amount owed through negotiation, and then exercising the discipline to accumulate the smaller lump sum payment required, the consumer can eliminate debt completely, while avoiding the negative consequences of bankruptcy.
Profile of a Debt Settlement Client
The typical debt settlement client:
- Has debt accounts that are currently in default
- Feels trapped in minimum payments that offer no end in sight
- Seeks to eliminate the stress of overwhelming debt
- Is considering a bankruptcy filing
- Has income or funds available for a lump sum payment
Debt Settlement Works
After a long period without receiving payment on a delinquent account, creditors are motivated to accept a reduced amount immediately in satisfaction of the debt rather than pursue legal remedies that are costly, time consuming, and offer no guarantee of success. If the consumer is in default on multiple credit obligations, lenders are further motivated to act quickly to get any money available before other creditors can. For the consumer already having income shortfalls, using limited assets to make the reduced lump sum payment required under debt settlement is a big decision, but it is invariably preferable to making minimum payments for years, and far cheaper! If at all possible, debt settlement is almost always the best solution. And remember, in debt settlement discussions with creditors – everything is negotiable!
The Challenges of Debt Settlement
For millions of Americans mired in debt by the current recession, settling those debts by negotiating with creditors is a legitimate solution and a preferable alternative to bankruptcy. Although debt settlement has always been an available option, the recent changes to federal bankruptcy laws, which have made it more difficult to wipe out debts, have increased the interest in debt settlement. Predictably, many new companies are emerging to assist consumers through the settlement process.
Unfortunately, many of the consumer debt counselors employed by the new firms are insufficiently trained in the nuances of debt settlement, with the result that consumers are poorly represented. In many cases, the debtor is either led to accept a less favorable settlement than should have been negotiated, or worse, they are misled to believe that settlement is a viable option for their situation when it’s not.
The root of the problem is that this fast-growing industry is under-regulated, unlike their counterparts, the debt collection firms, which are heavily regulated. Most debt settlement companies operate without established policies and procedures to ensure the services offered are appropriate and professionally delivered. The reality is that many debt settlement programs regularly fail to provide the services promised to the consumer.
Debt settlement is the ideal solution for many consumers in financial straits, but not every one. Companies must recognize that consumers are emotionally vulnerable and closely monitor which debtors are recruited by their debt counselors. Also, their fiduciary responsibility to the debtor requires that all other options be fully explored before recommending the debt settlement option to their clients.
The debt settlement recommendation should be based on the client’s unique circumstances, including the nature of the accounts owed, current income, and the foreseeable circumstances of their future financial profile. Because the debt settlement process, the legal remedies available, and the company’s representation fees are often not fully disclosed, consumers have become frustrated, and the entire industry is discredited.
The goal for all debt settlement companies and arbitrators should be to provide appropriate and effective strategies to resolve their clients’ credit issues. With comprehensive training in the complexities of debt settlement, counselors can effectively apply the debt settlement strategy, and all parties involved in the settlement process will benefit.
