The process of debt settlement, debt arbitration or debt negotiation means that the creditor is ready to accept lesser sum then the amount of money he was waiting for the debtor to pay. This new amount is considered as the full payment.
Debt settlement is the attempt to lower the amount of the debt based on the agreement between the creditor and the debtor.
How does it all work?
When you start taking part in the debt settlement program in USA, you pay the money to the given trust account for several months according to the task of the settlement company. You stop making payments directly to the creditors, so you no more have to interact with them. Instead you get your private login in order to get into the secured area of your trust account. The day you save enough money on the account, the company starts negotiating with your creditors.
In order for the negotiation to be successful the debt settlement company chooses the amount of money that is acceptable for both you and the collectors or creditors. Once the deal is made, and the needed sum is fixed, you can pay it off in either lump or installment.
Usually the negotiators of the debt settlement company manage to reduce the given sum significantly so that the amount of money becomes fully affordable for you. Still it’s hard to say how much the sum will reduce before the actual negotiation takes place.
Does debt settlement work for all kinds of debts?
Debt settlement is usually the great option for unsecured debts only. According to this statement you can only run the debt settlement program for the debts not secured by collateral.
Here are the debts usually accepted by the debt settlement companies:
- store card bills;
- payday loans;
- rent defaults;
- credit card bills;
- utility loans;
- personal loans;
- any kind of credit with unsecured line.
The mortgage and the other debts of this kind cannot be secured as well.
Are there any fees for the debt settlement?
The help of the USA debt settlement company will cost you the defined fee. Still according to the law of 2010, the debt settlement companies have to right to charge any upfront fees or the fees for the service. They can only charge on the amount of money they helped you to save.
To get the full idea about the charges and costs take a look at the Oak View Law Group’s fee structure. There you will obtain the full understanding of the costs of the settlement process.
Why would my creditor deal with the debt settlement company?
By accepting the offer of the debt settlement company the creditor lets you pay only the half of the debt, which causes him to lose the money. Not every debtor understands why the creditor would actually deal with the debt settlement company on these conditions.
First of all the creditors are intelligent people. They see clearly you’ve got two ways to solve the problem. One of them is the bankruptcy, in case of which the creditor gets nothing at all. On the other have the second option is debt settlement, which grants him at least part of the sum.
It’s clearly better for the creditor to get at least some money back, so the debt settlement is considered to be a good deal.
What is so special about the new laws enacted by FTC?
In 2010 the new laws for debt companies were introduced by FTC (Federal Trade Center) in USA. The main matter of this set of laws was to reduce the debt settlement scams, which appeared in the market in the last years.
Here is the main set of laws:
- Fee: The debt settlement companies are not supposed to collect any fees before they have settled at least one debt of their client.
- Agreement: The creditor, the debtor and the debt settlement company shall make the written agreement; all the fees can be collected only after that.
- Payment: The debt settlement company can charge the fee after the creditor has received the first payment from the client.
- Trust account: The funds of the consumer get accumulated on his private trust account. The client can withdraw the money from the fund without any penalties.
- Disclosure: The professional debt negotiator shall keep the picture clear for the client by telling his the various aspects of the program and explaining the time needed for the debt to be paid off.
- The companies are not allowed to hide or to misrepresent any facts like stating themselves as non-profit organization when they aren’t or fabricating their rates of success.
Are there any alternatives to the debt settlement?
Do not panic in case your creditors do not want to settle, since there are several other options to deal with your problem. You can resort for the debt management, credit counseling, debt consolidation or even bankruptcy.
In this case the borrower receives the loan from the consolidation company, which allows him to pay off the debts. The loan is usually given with lower interest rate and gives the opportunity to pay one bill monthly instead of multiple bills from various creditors.
Debt management and credit counseling
There are agencies specializing on the debt management plans, which help the debtor to close the unsecured debts over time. The main feature of the program is to reduce the monthly payments in order to let you pay off the debt.
This is the opportunity to get the debt relief and to use the agency as the negotiator between you and the creditors, so there will be less collection calls in your daily routine.
Usually the bankruptcy is the kind of last resort for the person who is not able to pay off the debts. Though in this case you will be free from most of debts, still this option will have the long lasting effect on your future living.