Debt Settlement
Put Your Debt
Behind You
With prices rising, it is very easy to find yourself buried in crushing debt. Many honest people end up in difficult financial situations with hard-to-handle debt loads. But is there anything they can do besides filing bankruptcy? The answer is yes! We find that sometimes it is possible for our clients to handle out-of-control debt through the process of Debt Settlement.
What Is Debt Settlement?
Debt settlement is the term used when a payment plan is set up or an agreement is reached to pay off a debt in a lump sum instead of payments. The settlement may be less than the amount owed, either due to reduced interest or principal balance or waived fees.
Debt settlement covers forms of debt relief short of filing bankruptcy. Usually, it means using a company or service that sets up a payment plan to get out of credit card debt. But it also means hiring someone, usually an attorney, to negotiate a settlement with a specific creditor. This is almost the situation when a collection agency has filed a lawsuit against you.
Since this can be a complicated process, it is usually a job for professionals. You could definitely try to do it yourself but it is much easier to have a company or service involved since they know what kind of arrangements are usually possible.
But these companies and services don’t usually handle debts when a lawsuit has been filed to collect them and so you usually have to hire an experienced attorney to try to negotiate a settlement if that has already happened.
Debt Settlement or Bankruptcy?
When it comes to debt relief options, the two most common alternatives are debt settlement and bankruptcy. But the answer to which one is the better option usually depends on your specific situation.
Some people with smaller amounts of debt and steady income might be better off with debt settlement. Other people with more debt and less income available to pay it may be better off discharging the debt in bankruptcy and starting over to rebuild their credit. This is especially true for people with a lot of credit card debt.
While bankruptcy causes a long-lasting negative mark on your credit report, with active efforts to rebuild your credit, you would probably have better credit sooner after a bankruptcy than with a debt settlement payment plan. And, of course, some of your creditors may not be willing to accept smaller payments or a reduced lump sum payment to satisfy the debt.
Sometimes our clients are better off trying debt settlement first, knowing that they can then file bankruptcy if the debt settlement agency can’t set up payments that they can handle.
So Debt Settlement may be either using a company to try to set up payment plans for multiple credit card accounts or hiring an attorney to try to settle with one or two debts or with a creditor who has filed a lawsuit against you.
How Debt Settlement Affects Credit Reporting
Missing or being late with payments affects your credit score negatively, and settlement for less than the full amount or for smaller payments will also cause a drop in your credit score.
However, the negative effects caused by debt settlement are only on your credit report for seven years while a bankruptcy stays there for ten years. On the other hand, you can’t start to rebuild your credit score as soon with a Debt Settlement as you can after a bankruptcy.
But whether your debt is handled through a debt settlement or bankruptcy, there are ways you can improve your credit score. And if you take active steps to rebuild your credit, you can have good credit again even though you still have late payments or settlements for less than the full balance or bankruptcy on your credit report.
Using a Debt Settlement Company
Debt settlement companies often promote themselves as being able to get creditors to accept smaller payments and to waive or reduce the interest charges. Some will even claim to be able to reduce your debt to a fraction of what you owe. Good debt settlement companies will be able to tell you in advance what kind of deal they can arrange.
Beware of anyone who wants you to stop paying your debts or pay their fees upfront. The good companies get paid from your monthly payments.
And you should avoid companies who want you to stop making payments and send the money to them instead BEFORE they have set up arrangements with your creditors. Most debt settlement companies will have you send them the payments rather than sending payments to the creditors but only AFTER they have made an agreement with your creditors.
Risks of Using a Debt Settlement Company
You should consider these serious risks before hiring a Debt Settlement Company and letting them enroll you in a debt relief program.
You Might Still Have to File Bankruptcy
A big risk is that you might still end up having to file bankruptcy, only later instead of sooner, and that the money you pay into the Debt Settlement plan was wasted. We advise our clients to be sure that they can afford the payments and to only enter into an agreement that your creditors have already accepted. If you can’t make the payments or if a creditor won’t accept the payment plan, they may file a lawsuit. If that happens, the Debt Settlement Plan may not work and you may end up filing bankruptcy anyway.
More Debt
While you are in a debt settlement payment program, your debt may increase if interest continues to be added. There may be fees, such as late fees, that are also added to the balance. The process sometimes takes years, which can result in significant increases. While it may be wiped out if you make all of the payments, if you can’t complete the program, you could end up owing more than you did when you started.
Lack of Cooperation From Creditors
Some creditors are not interested in settling. They may even choose to sue you for the remaining balance and refuse to work with a debt settlement agency. This is particularly true when you have medical bills or pay day loans in addition to credit card debt. One uncooperative creditor can keep you from being able to set up a payment plan for the rest of your bills.
Fees
The best debt settlement companies charge 15% and get paid from the payments you make on the settlement arrangements that have already been made. If the company is going to charge late fees, debt settlement fees, initiation fees, and other fees you should avoid them. These add more to your debt load. The same is true if they are going to charge you a percentage of the debt greater than 15%. You should definitely avoid companies that propose to pay themselves first and then the creditors.
Credit Score Hit
If you are behind in payments, you will have late or missed payments on your credit report. Each of these late or missed payments will be reported to the credit agencies and will damage your score. Reaching an agreement on new terms will keep you from getting more dings for late payments but won’t remove the ones you already have.
With a Debt Settlement, you won’t reduce your debt-to-income ratio until you actually start to pay down your debt. This is unlike the situation with a bankruptcy, where this important measure of your credit standing improves immediately when the debt is discharged.
Using a Lawyer
Choosing an attorney who is used to dealing with creditors and settling debts is a good starting place. A good lawyer will look at your unique situation, analyze it, and offer appropriate advice about the advantages and disadvantages of a Debt Settlement vs Bankruptcy. But lawyers don’t usually do the kind of Debt Settlement that the companies do, where you make a payment arrangement or Debt Settlement with all of your bills at once.
Hiring an Attorney to Settle Debt
This is usually done to settle just one or two debts, not multiple credit card debts. It is sometimes done when the creditor has filed a lawsuit since the Debt Settlement companies don’t usually get involved or will back out if there is pending litigation or if a lawsuit is filed.
We handle Debt Settlement negotiations on a retained, hourly basis. However, we usually are willing to put a cap on how much you will incur in fees trying to settle the debt. So typically we ask that you deposit an amount of money that you are willing to pay us to have us try to settle the debt, typically $1,000.00 or $1,500.00. Then we work against that deposit on an hourly basis of $250.00 to $350.00 per hour, depending on which attorney you hire. But we place a cap of that amount on your fees and won’t charge you more unless you authorize us to do so.
If we are successful in setting up a payment arrangement, usually the creditor will insist on getting a stipulated judgment. This is so that, if you don’t make the payments, they are in a position to start to garnish your wages or bank account immediately.
We don’t try to set up payment arrangements with multiple accounts as it is more cost-effective to use a company that specializes in those kinds of Debt Settlements.
Benefits of Using a Lawyer for Debt Relief
The basic benefit of going to a lawyer first is that they will discuss with you all the choices you have for settling your debts. The lawyer will help you decide whether settlement or bankruptcy is the better option for your particular situation.
If you hire us to try to settle a particular debt or a pending lawsuit, you will have the benefit of our experience in these kinds of negotiations. And while it is not possible to guarantee that we will get a reduction in the amount owed through a lump sum payment or payment plan that you can afford, we will do our very best on your behalf to get an acceptable settlement.
Lump Sums vs Payment Arrangements to Settle Debt
The truth is that money talks. You will probably get a better deal if you are able to offer a lump sum to settle the debt than you will if you want to propose payments. But it is hard to accumulate the funds to offer a lump sum settlement unless you have someone who will help you fund a settlement. Most people don’t have anyone on the outside who will offer them the funds to make a lump sum settlement. But there are situations where people use their tax refunds or sell an extra vehicle or something else to get the funds to offer.
But usually, a settlement involves a judgment and an agreement by the creditor not to try to collect on the judgment while you make the payments. When the agreed upon payments are completed, the judgment is satisfied.
When To Call a Debt Settlement Attorney
It is time to call a lawyer and discuss your situation when:
- Your unsecured debt is overwhelming
- You cannot pay minimum payments
- You are considering bankruptcy
- You are being sued for debt collection
- You are concerned about garnished wages
A good debt settlement attorney will be willing to discuss the possibilities for clearing your debt, which may involve an emergency debt relief plan. We will assist in settling debt in a way that will have the least negative consequences. We will do our best to help you to reach financial stability and freedom from debt.
What Is Debt Settlement?
Debt settlement is the term used when a payment plan is set up or an agreement is reached to pay off a debt in a lump sum instead of payments. The settlement may be less than the amount owed, either due to reduced interest or principal balance or waived fees.
Debt settlement covers forms of debt relief short of filing bankruptcy. Usually, it means using a company or service that sets up a payment plan to get out of credit card debt. But it also means hiring someone, usually an attorney, to negotiate a settlement with a specific creditor. This is almost the situation when a collection agency has filed a lawsuit against you.
Since this can be a complicated process, it is usually a job for professionals. You could definitely try to do it yourself but it is much easier to have a company or service involved since they know what kind of arrangements are usually possible.
But these companies and services don’t usually handle debts when a lawsuit has been filed to collect them and so you usually have to hire an experienced attorney to try to negotiate a settlement if that has already happened.
plan of action
know your rights
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01
Debt Settlement Or Bankruptcy
Determine if Debt Settlement or Bankruptcy is best for your situation.
02
Choose a Debt Relief Company or Debt Relief Attorney
Weigh the pros and cons of using a debt settlement company or a debt settlement attorney to help you with your case. This decision can have a drastic effect on how your case gets handled.
03
Negotiate the Repayment plan
Your debt settlement company or debt settlement lawyer will negotiate repayment terms on your behalf with your creditors