What is Debt Settlement?
Debt Settlement, also known as Debt Consolidation, Debt Reduction, and Debt Negotiation, involves negotiating with creditors to “settle” a debt that is past due, charged off, or otherwise uncollectable. If negotiations can begin prior to the debt being turned over to “outside” collections, that is a private collection agency such as Arrow or Midland Credit, the balance owed can be reduced by up to 50 percent, and sometimes include credit reparations as part of the settlement and if planned and executed efficiently, can free a consumer of unwanted debt as little as 12 to 36 months.
How Do You Know you are Working with a “Good” Debt Settlement Company?
A good debt settlement company is going to ask you questions in order to qualify your chances of favorable results. Although it these questions may seemingly be invasive, they are not meant to be. A good debt settlement company has an ethical responsibility to you to ask these questions so that we can obtain the best results for you under your individual circumstances. What makes these questions necessary is the fact that there are some debt holders who refuse to negotiate an account based on the history of the account and its recent activity.
If there has been recent activity such as large balance transfers, cash advances, or large purchases, it is unlikely that the debt holder will accept any offer made on your behalf. It does not make any financial sense for a debt holder to force a consumer into bankruptcy, but if they believe that the consumer has been engaging in fraudulent activity, or borderline confidence schemes, it is very likely they will attempt to pursue the debt in the most aggressive and prejudiced manner possible.
If your account has any of the aforementioned recent activity and reasonable time has passed and you have made timely payments, they may make counter offers to attempt to negotiate a higher settlement. It is important for a debt settlement company to be ethically diligent during when qualifying a prospective client before placing them in the proper enrollment plan. A poorly qualified enrollment will invariably produce poor results.
Is the Debt Settlement Company Disclosing Downside Potential?
This cannot be overstated – if a debt settlement company fails to disclose the negative impact to your credit report, and / or the possibility of legal action associated with a debt settlement strategy, they are not operating ethically and should not be considered as your representative. There are many companies that are springing up in the debt settlement industry that are refugees from the predatory lending industry and are engaging in the same practices that created the economic fallout of 2007. They do not care about your long term financial health and are to be avoided.
A chief indicator can be a company with a large call center who has not been in business for any length of time, and is suddenly seen through endless television ads. Check these companies out thoroughly before enrolling. A company who is reputable, ethical, and concerned with the long term results of their clients will make a point of fully disclosing the downside potential of debt settlement strategies.
Is the Debt Settlement Company Using Fear Tactics?
While a good debt settlement company will disclose downside potential to you, they will not use it in order to amplify your fears so that you immediately enroll in their program. This is a very common practice and is a shameful one. The truth is that unless you owe a lot of money to a single creditor, the chances of you being sued or forced into bankruptcy is entirely remote. This is because it is an unsound and unprofitable business decision to engage in litigation of any kind. However, the real question is whether or not you want permanent damage to your credit report which would include but not necessarily be limited to the following:
- Once an account is charged off from a creditor’s financial statement it is assigned to collections. The charge off is first notated on your credit report and then the collection account is notated. Once all collection activity has been exhausted, the account will be sold for pennies on the dollar to an outside collection agency.
- The new collection agency will send you a letter of demand which will disclose to you that you have thirty days to dispute the contents of the letter. If you respond, they will “investigate” the matter internally. Once the “investigation” is concluded, they will contact you and tell you that you do owe the money as described in the initial letter and they will make you an offer to settle, or they will be forced to report this to your credit bureau. If you do not settle they will continue to call you and write you until they have exhausted reported it to your credit bureau, and then they will resell the account to another collection company.
- Go back to step 2…
This cycle will continue until the time allotted for the legal enforcement of your agreement has run its course in your State of residency. Each State has specific provisions in its consumer law that affords a credit holder recourse action in the pursuit of the collection of debt. But, it only does so for a specific period of time otherwise known as the Statute of Limitations (SOL).
However, just because the SOL has run out on the original debt, does not mean attempts cannot be made at collection. There is no expiration or SOL on the pursuit of the collection of a debt. The SOL only pertains to the time afforded any creditor to pursue the debt within the constructs of a court order such as wage garnishment, bank levy, and negative credit reporting. Any activity pursuant to the original debt cannot legally be assigned to your credit report, nor can it be brought before any court for judgment because the contractual obligation in which you entered is no longer valid under the State SOL. This does not mean that an unethical collections agency will not engage in the act of “inadvertently” reporting an expired collection account, it just means that they will get away with it if you have not read this article.
This brings us back to our point about fear tactics. Any debt settlement company that is inciting fear or repercussion in you with regard to the pursuit of your debt should be avoided. But this does not mean that it is not in your best financial interest to enroll with a company that can ethically assist you. Endless negative credit reporting through the sale and resale of a given debt wreaks havoc on your life and the life of your family. Credit reports are used for auto loans, home loans, rental agreements, employment, etc. It just makes sense on your part to protect your credit on a long term basis. One of the best ways is through an aggressive, ethical, short term, Debt Settlement strategy.