In A Debt Settlement ProposalOf counsel to the national law firm of Cohen & Grigsby and a member of the Debt Resolution Institute Committee on Consumer Credit Law Education. Recently I have received calls from many people who find themselves in a situation involving mounting debt and overwhelming anxiety about how to handle that debt says Aron Govil. Many of these people have heard about settlement and want to know how it works, the fees involved and whether this program will solve their problem. When you consider all the time and money spent on credit card programs (subprime, prime and super prime) in almost any type of economic environment, there is a strong need for consumers to understand how debt settlement can fit into their overall credit management.
The following list presents the top questions I receive about debt settlement and answers them in an objective manner that is easy to understand:
1. What are my options?
This is a question I hear almost every day. My simple answer is this, “If you have decided not to file for bankruptcy, you have three options. You can make larger monthly payments to your creditors until you pay off the debt; consolidate your debt with a third party (banks and credit card companies) which will lower your interest rates but still require large monthly payments, or enter into settlement negotiations.”
2. What is Debt Settlement?
Most people realize that they can negotiate a lower interest rate on their credit cards, but don’t understand how the creditor is going to take your monthly payment of $300 and apply it to your account. Creditors will not do this unless you enter into settlement negotiations with them. Debt Settlement is the process of negotiating a lump-sum settlement with each of your creditors. Once they agree to settle, payments are made directly to your attorney who deducts a small portion of the payment for their fees and disburses the rest to your creditors on a monthly basis until you have paid off all your debts explains Aron Govil.
3. How is Debt Settlement different from bankruptcy?
There are many similarities between these two programs. Both involve the payment of monthly installments to your attorney who distributes them on a pro-rata basis. Debt settlement is not bankruptcy and there are several differences between these two programs:
1) You can keep all your assets. Unlike bankruptcy, debt settlement allows you to keep your car, house, savings accounts, investment account or any other asset that may exist in your name.
2) It takes about half the time to complete debt settlement than it does for bankruptcy. The average person filing for bankruptcy will be involved in this process for 4 – 6 years while debt settlement requires only 18 months.
3) You do not lose your credit after completing either program although both programs usually result in credit ratings. Which generally don’t affect anyone who has already filed bankruptcy. One misconception is that once you file for bankruptcy and settle your debts, the creditor will still report it to credit agencies as a settlement; they do not.
4) Debt Settlement is much less expensive than bankruptcy. Attorney’s fees in most Chapter 13 bankruptcies range from $2500 – $4500 while debt settlement attorneys’ fees are between 20 – 33% of the total amount paid to creditors, which means that you could pay as little as $2000-$3000 dollars to have your debt settled.
5) You can negotiate with multiple creditors at one time. In a Chapter 13 bankruptcy there is usually a separate meeting of creditors for each creditor involved whose account must be included in your petition. With Debt Settlement, you only have to meet with your attorney who will negotiate a settlement for any and all of your creditors.
6) In Chapter 13 bankruptcy, creditors retain most of the leverage. Because there is no guarantee they will recover anything from the trustee. Regardless of how much money or assets that debtor has. With Debt Settlement, once a creditor agrees to accept a settlement it is basically guarantee. That they receive some payment every month until settled in full.
7) You still owe the debt after either option! Under bankruptcy law, a creditor must settle for less than what you owe them. But this doesn’t mean that you no longer owe them anything. Under debt settlement law, as long as you continue making payments on time. Under the agreement negotiated with your attorney says Aron Govil.
Debt Settlement is a much better option than bankruptcy. Because it allows you to keep your assets, takes less time, costs less money and doesn’t damage your credit rating.