How does debt settlement and negotiation work?

Debt Settlement is what happens when you reduce the amount of your unsecured personal debts through creditor negotiations. At its core, debt settlement is the best option for a creditor to “lose the least” on accounts that default in payment. The process is largely predictable due to established timelines and bank policies which vary from creditor to creditor. Debt Settlement is a proven effective means to eliminate debt for the right person. For a more detailed explanation of what debt settlement is and why it works read: Debt Settlement – Why It Works

How long does the debt settlement process take?

It will vary. Debt settlements are reached and documented in as little as a few days. It will depend on how behind in payments you are, the creditor, what kind of money you have set aside to fund any settlements and what your financial goals are.

That is the short answer. What is rarely discussed by people and companies selling debt settlement services is “how long should a settlement program be allowed to go before it needs to be taken off the short list of options available”. The answer to this is not short and will vary for each person considering debt settlement. There will be a link to an article covering this topic in great detail soon. The answer as far as CRN is concerned is 18 months. That’s start to finish. People or companies selling debt settlement programs that exceed this time frame are selling more of a crap shoot. In our experience, programs allowed to exceed 12 months start to become more of a gamble. Past 18 months, the risks become larger month by month. If you need more than 18 months to complete a settlement program, you will often find you should not even start down the settlement path and seriously consider bankruptcy instead.

If 18 months to completion sounds impossible to you, you may be right. Then again, you just may not know what you need to about the process of debt settlement. You may have talked with one or more people who have misrepresented the whole thing. Also, it is often the high fees charged for professional assistance that leads to longer program lengths. Affordable & fair fees may make an 18 month program well within reach!

For now, if you would like to learn more detail on this very crucial aspect for determining if settlement is right for you, schedule a consultation with a CRN specialist.

Will debt settlement affect my credit score (FICO)?

Yes, as will every other option available to someone who cannot maintain timely payments on their debt.

More often than not, being in debt, especially overwhelming debt, your credit accounts already have, or are about to negatively affect you. Depending on how long you have been delinquent in payments, negotiating and settling these debts for good will have an overall positive effect on your credit score. Settled accounts and or zero balances are seen as “positive” when compared to unresolved debts.

Your major concern should be dealing with the debt first! Credit can recover. You can learn more about how the different debt relief options affect your credit without the spin by reading:  Debt Relief vs. Credit Report

Or read the real life experience of a CRN member interviewed by the Detroit Free Press:  Debt Settlement in Michigan

Will I be able to get credit in the future?

Yes. It is always recommended to plan ahead for your credit needs. Here again we recommend reading: Debt Relief vs. Credit Report

Can I really negotiate my debt with my creditors myself?

Yes! Debt settlement isn’t rocket science. It’s just that there is a formula to follow to optimize your results! Most people are skeptical when they first hear about do-it-yourself or DIY debt settlement. There is no shortage of sales people out there who reinforce the idea that only a pro should handle your settlements. They only get paid, after all, if you hire them. Most of the people “selling” debt settlement could not settle their way out of a wet paper bag. They enroll you – get their commission – then hand you off to a back end service provider.

The truth is: You Can Settle with Your Creditors! When you understand how the whole collection and settlement process works coupled with up to the moment policies with each of your creditors, it becomes simplistic and straight forward. You also save a ton in fees! This is why CRN’s focus since our inception has been to start every member off with the tools and ongoing support needed to complete a DIY program. Maybe you really want a pro to do the settlements for you? That’s fine. We will, and we only charge for it when we are done and you know what you have saved! We just believe everyone should be given the opportunity to know what the pros know and then make up their mind. Many of our members appreciate that. You will too!

For a more detail read: DIY Debt Settlement

Will I still be able to use my credit cards?

No, not the ones you intend to settle.

What does debt settlement and negotiation cost?

Some Debt Settlement Companies charge several thousands of dollars to settle your debts for you (usually 15% of the total debt you submit to them at the time you enroll). Many hundreds of thousands of people over the past several years seem to have no problem with these fees. However, many people did not understand they were paying these high fees due to how the fee schedule was disguised, not fully explained or hidden in the fine print of service contracts.

The Federal Trade commission is likely to publish new rules this year (2010) that will ban any up-front fee for debt settlement services. Fees will be charged based on success only, which is how CRN has always charged. The 15% of your debt fee model (which, we at CRN, have always believed to be way too high) will then become what we predict will be 25 to 30 percent of savings. Still way too high!

Here is what you need to consider:

The fees you pay to a debt settlement service provider will directly relate to how long it will take you to be successful and ultimately if you should even consider debt settlement at all.

Until these rules are published by the FTC, we strongly encourage you to only engage the services of a settlement service provider whose fees are based on SUCCESS. Given that CRN’s fees are 15% of savings with a full credit of membership costs as an offset to those fees, we are currently the best choice when making a straight cost comparison for full service debt settlement.

For some fun reading on this topic, read: Dude Meets Debt Wall

Also recommended: Debt Settlement – The Gist, The Juice & the Lies

Are your debt settlement products guaranteed?

Yes. We have a guarantee for CRN Members. You can review that guarantee by downloading the Membership Enrollment Form.

When it comes to guaranteed settlement results however, there can be no guarantees. If anyone is offering one to you – promptly become skeptical of whom you are dealing with.

Guarantees have long been used when offering products and services to the public in two ways; by those who are supremely confident in your satisfaction with the product or service they offer, or by those whose only goal is to get you in the front door and satisfaction be damned. Due to all of the negative press the debt settlement industry is deservedly receiving lately, you be the judge of which category one offering results guarantees would fall into.

CRN will guarantee that when you ask us to perform direct settlement services on your behalf – you will not pay a fee unless we get you a deal in writing that you like and then fund!

Is my personal information kept private?

Yes, absolutely. In a case where we are negotiating settlements for you, however, you will be required to provide Consumer Recovery Network with written, and sometimes verbal, authorization that allows us to give and receive information on your behalf when negotiating credit accounts with each individual creditor, as requested by you, the consumer.

Will creditors or debt collectors still be contacting me about my debt(s)?

Creditor calls are simply part of the process. Our program includes options you can use to reduce unwanted collection calls to a minimum without causing a bad reaction from your creditors. Many companies send out letters to your creditors instructing them to cease communication with you. This is a harmful business practice! It is important that you allow contact with creditors and even collectors. If they cannot contact you they are left with the most aggressive tactic for collection, the courts.

Collection calls, for some, will seem to be the most burdensome part of the process. The goal of the collector is to get any type of payment from you that they can. They have proven willing to cross the line when doing so. Our program will show you what to watch out for and recognize as abuse. Should collection abuse occur, you can be referred to a consumer attorney familiar with taking the collection industry to task on violations of state and federal laws that exist to protect you.

Is it true that there are sometimes tax consequences to settling a debt for less than the original balance?

Yes. If you have a debt that is settled for less than the original balance, and the difference (the forgiven portion of the debt) is greater than $600.00, the creditor is supposed to send you a 1099c, which would then be reported as income.

The IRS does allow you to write off any income from forgiven debts up to the amount by which you were insolvent at that time. Unless you had a positive net worth at the time that you settled an account, which, for many, is unlikely if you’re buried in debt, then you generally wouldn’t have to pay any taxes on the forgiven debt(s). Always consult a tax attorney or adviser for options that can be applied to your specific circumstances. Incidentally, if you do wind up owing taxes, it is because you saved money. So, keep that in perspective. In the same way that you would budget and set aside funds to settle with, if you are solvent and owe tax on forgiven debt, you must also budget accordingly.

For more detail, please visit:

http://www.irs.gov/individuals/article/0,,id=179414,00.html

http://www.irs.gov/pub/irs-pdf/f982.pdf

What types of debt(s) can be settled?

Most any type of unsecured debt can be settled. For example:

• Consumer debt
• Credit card debt
• Business and/or commercial debt
• Slow or late payments
• Defaults
• Charge offs
• Debt collectors and/or attorneys
• Medical bills
• Utility bills
• Deficiency balances
• Store credit cards
• Major credit cards
• Pre judgment and post judgment settlements
• Bank account and/or wage garnishments

To best determine which accounts can be settled and the current trends with each of your creditors, you should schedule a consultation with a CRN specialist.

Can my wages be garnished?

Debt Collectors can be intimidating and may use questionable tactics that are designed to scare people into making a payment, even if you cannot afford to make one. Actual garnishment actions are not that common and you will have advance warning. Creditors must first file a lawsuit, get a judgment, and then get court authorization for a garnishment. You cannot just have your pay check, or any portion of it, taken without court approval, and you must receive notification and proper documents from the court first. Worst case scenario, you may need to negotiate a settlement that is higher than you would have liked, or commit to a payment plan in order to avoid a garnishment.

Can I be sued if I use the debt settlement approach?

Creditors have the right to file a lawsuit if you are not paying a debt. This is one of the biggest concerns you should have before determining if debt settlement is something you should attempt.

Given how many accounts fall delinquent each year, lawsuits in order to collect are not that common. Don’t let this statement lead you to think it won’t happen to you though. Being sued means you will have to address that specific debt as a priority to settle before it becomes a judgment. Settling a lawsuit out of court and avoiding judgment is quite normal, but the rate of savings will generally not be as good as when settling debt that is not in the courts.

If you are only marginally suited to try debt settlement as a means to avoid bankruptcy and you get sued early on, it may become a show stopper. You may then have to file bankruptcy due to not being able to fund an out of court settlement or have to agree to a payment plan that will hinder your ability to save money to settle with other creditors. This can and does snowball into delays in settling other debts which can then lead to more lawsuits.

This is good context for the question above “How long does the debt settlement process take?”.

Further:

Threats of litigation are very popular, regardless of the fact that debt collectors are prohibited (by the FDCPA) to threaten legal action unless they’re authorized to do so. This does not stop collectors from making the threat. You will need to know which threats are credible and which are part of typical (and unfortunately abusive) debt collection efforts.

Can I still settle my debt if I’m currently being sued by a debt collector or creditor?

Yes. It is still possible to come to acceptable settlement terms during litigation or after a judgment has been filed.

Do you work with business or commercial debt?

Yes, we can assist companies and small businesses seeking debt relief.

How do I get started with debt negotiation and settling my debt?

Your first step will be scheduling a consult with a CRN specialist so you can learn in detail what and how debt settlement will work in your particular circumstances. You will need to qualify for our program. Not everyone qualifies, but everyone appreciates the time we take in helping to determine what options will fit you. You can call us toll free to schedule a consult: 800-939-8357