Debt SettlementDebt settlement is a relatively new financial program for helping consumers and small businesses to get out of debt in the quickest timeframe possible while avoiding bankruptcy. Debt settlement has proven itself to be an efficient and ethical debt relief program as well. Yet because debt settlement is still rather new, some consumers may be mystified by the dynamics of debt settlement and debt negotiation, and how the process works. Here and now we shall dissect what debt settlement is, what debt settlement is not, and how it may work for you.
Understanding Debt Settlement1. The importance of program length. In any debtor-credit scenario, a creditor is reserved the right to sue a debtor in court if they are not paying according to the terms stipulated. The longer you take to settle a debt, the greater the likelihood that you may be the target of legal action by your creditors. Since this is the case, all debt settlement candidates should always try to eliminate the debt as quickly as possible. As a rule of thumb, being in a debt settlement program for longer than 3 years is not advisable, although exceptions can be made depending on the state you reside in, type of income, etc.
2. The importance of your creditors. As one should expect, each bank or creditor deals with debt settlement in a different manner than the next. While almost every creditor may in fact settle, some creditors are more likely to settle than others.
3. The importance of your hardship. Creditors are human. If your enrollment in a debt settlement program is the direct result of circumstances beyond your control (such as a divorce, medical issues, job loss) and you can document this, then you are far more likely to get a favorable settlement versus a person who the creditor feels could have paid the debt back in full. If you are inundated and only able to afford the minimums, but it was more the result of poor budgeting than financial hardship, it's still likely that you'll be able to obtain a favorable debt settlement. Had you just been diagnosed with brain cancer for example, the debt settlement would probably be much more favorable and the negotiations process a whole lot easier. Sympathy still goes far these days.
4. The importance of your recent account activity. This plays into your hardship because it's all about whether the creditors feel you've been fraudulent in your business with them. For example, if you just bought a plasma TV on your credit card a month ago, a favorable debt settlement may not fly. If the creditor doubts that you ever had any intention of paying them back, then the negotiations over your debt are most likely not going to bear fruit, yet it never hurts to attempt to settle amicably.
5. The importance of your credit history. The main draw of debt settlement for creditors is that they can recover a portion of a debt that otherwise could potentially be completely wiped out by bankruptcy. Unfortunately, if you've filed bankruptcy in the past 2 years, then you can't file again for another 5 years, so a creditor loses some of the incentive to negotiate a balance. Yet still, even if you have filed bankruptcy in the past 7 years, a debt settlement can still be reached in most cases. Why is this? There are two reasons: a) many times a creditor would not be able to collect the debt from you anyway because you don't have any assets or sufficient income, and b) having 50 percent of the balance in one lump sum is attractive when it means the creditor doesn't have to spend time and resources chasing you down. Finally, the longer it's been since you've filed, the stronger your negotiating position is. In other words, if it's been 6 years since you've last filed, then the time line when you're eligible for bankruptcy again is too short for most creditors to risk potentially losing everything by refusing a settlement. To discuss your debt situation with a debt counselor and learn how you may benefit from a debt settlement program, please fill out the contact form above and a representative will contact you shortly!