REFORMING AN INDUSTRY

After 10/27/10, virtually all of the companies offering to settle debt for a fee, will have to charge those fees based on a contingency. In other words, you pay for the service contingent upon who you hire, having successfully negotiated a reduced pay off amount with your creditors that you then accept and fund. Makes a ton of sense right? Yes indeed!

People will, however, still need to approach the idea of hiring someone to settle debts with caution.

Where We Were

Debt negotiation companies have, for the most part, been able to charge upfront fees. Often, the fees have been spread out over 6 to 18 months or more. This practice has long been recognized by some of us in the industry as one of the leading causes for consumers to “fail and bail” from their settlement program.

• The reason for the fail; money that could have been aggressively saved up to fund the earliest settlement offer went to the service providers fees instead.
• The reason for the bail; creditors and their assignees continue down a relatively predictable path to collect on unpaid accounts which can eventually lead to filing a court action to force you to pay.

Being sued does not necessarily mean the death of your debt settlement plan, but you need resources to address the lawsuit before it becomes a judgment. Without the money needed to address the issue, it will often mean the end of the road. Having paid upfront fees to a company who put their profit ahead of your success means you have limited, or no, resources to maneuver through the different stages of collection.

Where We Are

You may have, or currently do, recognize a debt settlement plan to be a realistic approach for you to avoid bankruptcy. Having enrolled (or thinking of enrolling) in a plan with a company whose fees were/are/still paid prior to successful negotiations is equivalent to gambling. You bet you can get through the settlements before getting sued. The company you hired bets they can get you to pay them all their fees before you bail.

Many companies who sell or perform debt settlement today will find that, without the ability to charge the high upfront fees, they will not be able to keep the marketing machine going. They will leave the industry. In their wake, we will hear from many more consumers who were sold the hope of avoiding bankruptcy by sales people whose only motivation was to meet a quota, keep their telemarketing chair and get paid. For more than a year, the media and internet has been ablaze with stories of people being taken in by the promises of many players in the debt relief industry. They are a statistic of the “fail and bail”. The statistics will get worse as several companies close their doors and leave their customers in a lurch, having paid in advance for a service that now will not be completed. At least, not by the people who were already paid for it.

Where We’re Headed

Do I sound a bit jaded? That’s because I am. So much so, that I can see where we are potentially headed in this industry.

Beginning in September, I think we will start to see some similarities with new and existing companies offering debt settlement  based on the now required (in most cases) contingency fee structure. Two of the similarities will be:

1. The new sales approach; “You need to come up with money as quick as possible to settle with your creditors”. – This is a good thing! It has been missing from the message of the majority of people selling debt settlement for a decade.
2. Many of the companies offering success fee debt settlement will charge between 25%-30% of savings where possible (some states have limits or caps on fees –Illinois is capped at 15%). – This is a bad thing!

When comparing 50% of your account balance as an average settlement, 30% of savings is roughly the same as charging the 15% of debt enrolled that has been the average in the industry to date. Fees could actually be higher than before with debts settled early in the program and for less than 50%.

We will still see high “fail and bail” statistics because companies will settle a debt and collect their contingency fee first, before moving onto the next settlement. There really is no problem with that per say. They did a job and should get paid for it. It is the correct model to have. Always has been. The problem is if the fee is too high, it still takes just as long to settle the debts as it did prior to the FTC banning upfront fees for a settlement service.

Where We End Up

I estimate it will take a year for the industry to settle in to the new business and operational realities created by the new FTC rules. Some companies are going to try to adapt, only to quickly find it no longer worth their while. Some will find that they should have been doing business this way all along, and will thrive. The amount of companies around a year from now will be far fewer than we have today. Within 12 to 18 months, the industry will have completed the all too necessary cleansing of those who came to it in order to make a quick buck.

BOTTOM LINE:

If you are a suitable candidate for debt settlement, which is someone who otherwise would have to file bankruptcy, look for companies with the lowest contingency fees. Even better, look for a company that: Offers low fees and other flexibilities that will lead to your success!

I have continuously written articles and spoken out in interviews about the practice of “selling” debt settlement. Selling someone into debt settlement is the number one reason the industry has been tarred and feathered in the media. The over hyped selling by profiteers and sales groups has resulted in enforcement actions by many states, and new FTC rules, in order to curb abuse.

DEBT SETTLEMENT SHOULD NOT BE SOLD!

Steve Rhode, on his blog, getoutofdebt.org, regularly covers the debt relief industry and its foul ups, bleeps and plunderers. He has recently covered several lawsuits filed by employees against the firms they sell/sold debt settlement for. The lawsuits allege failure to pay wages related to work performed. Steve has posted about lawsuits against: Lloyd Ward and Associates, ABC Debt Relief, The Debt Answer, Debt RX USA, Silverleaf Debt Solutions, CreditAnswers, and Credit Solutions of America. Key assertions in these lawsuits provide a clear view into the sales culture at some of these companies. I will focus on Steve’s post about the employee suit against Credit Solutions. Credit Solutions are also the target of multiple state legal actions.

From Steve’s post where he excerpts from the court record (my comments are in bold):

For at least three years prior to filing of this complaint and continuing (hereinafter “Liability Period”), CSA had a policy and practice of not correctly compensating its debt consultants for work performed for the benefit of CSA over and above forty (40) hours per week, to wit: virtually all debt consultants received a $2,000 forgivable draw their first 90 days of employment and a non forgivable draw of $2,000 per month thereafter. Debt consultants qualified debtors for debt settlement plans of Defendant by verifying the debtor possessed at least $10,000 in debt. Next debt consultants analyzed each creditor comprising the $10,000 is owed at least $600 and there are contracts in place between the creditor and CSA. The debt consultant sets up a CSA account for each creditor. Lastly, the debt consultant verified the debtor’s bank accounts and assisted the debtor in picking a payment plan. Once a plan was chosen the debt consultant, using CSA guidelines, would set up a monthly draft on the debtor’s bank account whereby CSA would obtain its fee and moneys to satisfy the debtor’s creditors. Eighty-five percent (85%) of CSA’s fee is collected from debtors’ accounts within the first 90 days. Debt consultants received a fee from the first monthly draft which was a percentage determined on the total volume of draft’s occurring monthly attributable to that debt consultant.

Here we learn that “debt consultants” are what I would more correctly define as sales people. The way this alleged fact is laid out would actually describe more of an order taker. What do they actually do by way of a consultation? It appears they just hit the immediate qualifiers, and then help you pick a payment option that will work for you. There is an obvious motivation for “picking” a payment that you will agree to. That is how they get paid! They have to do it though (more on this below).

Debt consultants were required to work a minimum of 12 hours per day, but were expected to work as many hours as necessary to reach assigned sales goals. Debt consultants regularly worked 14-16 hours a day and CSA provided debt consultants a room to nap and sleep when necessary to reach company goals.

Imagine the pressure to hit sales goals. In the current job market, these sales people HAD to perform to keep the job. They HAD to hit sales goals even if it meant sleeping at HQ to do it! No pressure, right?

Debt consultants were not provided a rest or lunch break, but instead, CSA served debt consultants “cup of noodles” for lunch so they would not have to leave their desk and could continuing selling the debt settlement services.

This allegation is one of the most descriptive of the debt settlement sales culture I have ever seen. Why not just put a shackle from the desk to the ankle of the sales person? Were there bed pans nearby?

Debt consultants worked six (6) days a week.

Ever see Ben Affleck in the movie “Boiler Room”? “ALWAYS BE CLOSING” – The sale that is.

As stated above, debt consultants do not receive overtime for hours worked over 40 in any week.

And why should they? You think cups of noodles are free?

CSA’s revised compensation/bonus plan containing an overtime component does not correctly calculate debt consultants’ regular rate of pay for purposes of calculating overtime; i.e. commissions paid on top of consultants’ hourly rate are not included in their regular rate of pay. – Source

Other than the outright lies that are told, there is no single more frustrating fact about the selling of a debt settlement service than the pick a payment plan approach. It is sold that way because it has to be. A consumer who is struggling to pay their creditors the required monthly minimum is focused on the dollar amount they cannot come up with. When a debt settlement sales person suggests all you need is to establish a monthly dollar figure that you can do, the hook is set!

Imagine if the sales people at Credit Solutions actually shared the TRUTH of the matter with you. If they told you that in order to be successful with settling your delinquent accounts, you are in a race. You have to come up with the money to fund offers as fast as possible. You would not feel the sigh of relief that is purposefully designed into the sales approach by the majority of people selling debt settlement.  Instead, your heart would palpitate. You would know that debt settlement is a tough choice, not an easy one. You would have a much clearer idea if debt settlement is even right for you. The sales person for CSA would not close as many sales. Do you think they would ever get to go home?

Don’t consult with a sales person offering debt relief!

If you are asked what you can come up with each month to put toward settlement, or someone “helps” you come up with a figure they are confident you will bite on, you are talking to someone offering “pick-a-pay”. Pick-a-Pay is a suitability test that everyone will pass. Using this approach means virtually any one breathing will qualify for debt settlement. That is, and has been, absurd (absurdly profitable that is).

Look to speak with someone who actually works with consumers and their creditors/collectors on a daily basis. If they have any experience and are what I would consider a responsible service provider, they will TELL you the amount of money you will need to come up with, and how quickly, in order to SUCCEED with settlement in your particular situation. Armed with this knowledge, you will then be able to evaluate whether or not filing bankruptcy would be the better choice.

You can speak with just such an expert by scheduling a consultation with a CRN negotiator. All CRN consults are conducted by people who, every day, actually settle debt or provide detailed information to CRN members on how to settle their own. There is no one more prepared to provide you the necessary details about how this approach will apply to your unique set of circumstances.

For more on how debt settlement is inappropriately SOLD, read:

• Dude Meets Debt Wall
• Shocking Eye Witness Debt Settlement Report
• Debt Settlement Marketing: The Gist, The Juice, and the Lies

Debt Settlement is a very real option for consumers who are trying to avoid bankruptcy. Unfortunately, the decision to try it is too often made from an emotional perspective. This has, is, and will forever be; The WRONG perspective to use in your decision making.

Unsure, Scared, Overwhelmed?

Those promoting debt settlement for high paid commissions have been able to capitalize on the emotional appeal of avoiding bankruptcy, even when the math would clearly show settlement to be an unwise choice in your particular circumstance. It will be increasingly difficult for those selling debt relief services to do this after 9/27/10.

Knowing What to Expect

One of the more dynamic requirements found in the recently announced FTC rules that will govern the for profit debt relief industry, is the requirement for Good Faith Estimates. There are several estimates that will be required, such as:

• Total fee for service
• When an offer to creditors will be made
• How much money a consumer must set aside before an offer will be made
• How long it may take to achieve represented savings results and thereby complete your settlement program

These estimates, combined with; savings claims having to be backed up by the ACTUAL experience of the service provider (more on how HUGE this is in future posts), account balance increases, estimate of the service providers fees and a few other whammy’s – make for fantastic features for consumers evaluating a debt settlement service!

These fact-based estimates of total savings, fees and program lengths must be provided along with key disclosures PRIOR to consent to pay. In other words, before you sign up for a service. Now you get to see the numbers! Your decision to attempt settlement should always be factored on a very clear understanding of:

—> How much it will cost and how long it will take <—

When all costs are considered, it may not be worth it. If a program would take too long due to your limited resources, you expose yourself to increased risks of creditors using the courts in order to collect.

CRN, for years now, has broken this down in detail during our initial consult with you prior to even suggesting working with us. We do not take a file if we cannot settle one or more accounts within 180 days of membership, nor do we accept a person into a program unless we can see clearly prior to enrollment that you can complete your work with us in 18 months or less (except in rare circumstances).

The required compliance with these new FTC rules will show consumers considering settlement that the program length of 36 months (even longer) hyped by the industry are so problematic, they should avoid debt settlement all together.

The poor image that debt settlement gets is due to the massive enrollment of people who were not suitable to try it from the outset. Companies and sales people have inappropriately signed up the wrong people in order to make huge commissions.

WARNING:

• Get any company you are thinking of hiring after 9/27/10 to put estimates in writing prior to hiring them. If they are unwilling to do so, I would suggest finding someone who will.
• Companies whose front-end sales people lack sufficient negotiation experience (pretty much all sales people) will likely have to use blanket percentages and timing estimates that may not accurately reflect the reality of your situation. This may cause you to conclude settlement is not a good option.
• Companies whose fees are set too high may cause you to conclude settlement is not a good option. Look for credible companies with low fees.

CRN has no sales staff. All initial consults are performed by our specialists who work with our members and their creditors daily. This means the numbers we share with you are based on real time data – as it pertains to you – at that moment.

CRN has, all things considered, the lowest fees in the industry.

Schedule a consultation online or call 800-939-8357 in order to get the facts, numbers, and accurate estimates and see if settlement can work for you! Have a question? Get answers on line, go to: ASK CRN

CRN Supports Changes to the Telemarketing Rule Just Announced by the FTC

Yesterday, the FTC announced important changes to the Telemarketing Sales Rule, http://www.ftc.gov/opa/2010/07/tsr.shtm. The changes are intended to protect consumers with too much credit card debt from abusive debt settlement practices. One of the most important changes is that settlement firms will no longer be able to charge consumers up-front fees to settle their debts as of 10/27/10.

Overall, I am thrilled that the FTC is reigning in abusive debt settlement firms. For too long, these firms have been allowed to prey on consumers with too much credit card debt. Sadly, in far too many instances, consumers who worked with such firms saw their financial situations grow worse, not better, because of the large up-front fees they had to pay, and many of those consumers eventually ended up in bankruptcy.

The rules will shape the industry and promote the best practices moving forward.

I am concerned that some settlement firms may charge a large fee at the back end of their work for consumers. I have always contended that the fee amount charged by a debt settlement service provider directly correlates to how long it will take an individual to be successful in settling all of their debts. Program duration is directly attributable to increased risk of aggressive collection efforts such as filing lawsuits against a consumer in order to collect.

When consumers are looking into debt settlement as one of the few legitimate options available to deal with crushing debt, it is IMPERATIVE that they still weigh the COST for the service.

I will be posting more detailed comments about the amendments soon. Stay tuned!

Many people we work with write in to express their gratitude for the assistance we, at CRN, provided in helping them get out of debt. We decided to create a way for people to share their experiences with others by posting to this blog!

You are Invited…

…to share your story, feedback, and/or review of your experience working with Consumer Recovery Network in the comment section of this post.

There are no rules for posting. You may want to follow an outline of what brought you to CRN, how we compared to other options or companies you looked into, what happened along the way, and what the ultimate result of working with us has been, to date. Or, just have fun and express yourself!

ALSO:

Not everyone we consult with qualifies for our more aggressive approach to dealing with debt. Many of you we consult with still appreciate the time we take to inform you of what debt settlement really involves after having contacted other service providers. Our consults are often a refreshing dose of blunt honesty for people just looking for information and answers they can trust. You are invited to share too!

Tell you what….if you having anything to share about CRN, the Debt Bytes Blog, or any facet of the work we do…. chime in! We look forward to hearing from you!

P.S. You can identify yourself using your initials or first name only, unless you are comfortable sharing your identity, like Jonathan Grossman, who blogs about his experience with CRN at Debtsettlementstory.com

Today, the Detroit Free Press ran an article about how consumers have the option to negotiate a reduced balance pay off with creditors (debt settlement). Read the full article here: Debt Settlement in Michigan

I was interviewed by the reporter for the story, as was a CRN member who was quoted in the article. The article gave some good advice, but I would like to expand on it. The article correctly stated many companies “have taken outrageously high upfront fees — as much as 13% to 20% of your debt”. The average fee charged by most settlement companies is 15% of the debt you ask them to settle for you.

The CRN member quoted in the article settled $35,000.00 of debt for $12,000.00 by implementing the tools and following the guidance she received as a CRN member. Had she hired a typical settlement company to settle her debt she would have paid an average of $5,250.00 in upfront fees. However, as the Detroit Free Press article stated, she paid CRN just $1,200.00 to do the same thing. Would it really have been the same thing though? Not hardly!

If you hire the typical settlement company, you’ll find:

• By paying high upfront fees before the company achieves any real substantive results for you, you are prolonging your success, and often dramatically reducing your odds of achieving any success at all.
• The company will probably send notices to your creditors letting them know they are now working with you. This means the creditors will know that you are now paying a settlement company instead of them. Often, the reaction to this information will be to become more aggressive about collecting what you owe them, possibly by referring your account to a law firm in your area earlier than it would otherwise and giving the firm authorization to sue for the money you owe.
• The settlement company will generally not be negotiating with your original creditors because they mostly wait for your accounts to charge off. Charge-off usually happens at about 6 months of nonpayment. Once creditors charge off bad debt, they will typically do one of three things with your account, assign, sue or sell.

Settlements are still available when your account goes someplace other than with your original creditor after charge-off, but depending on who your creditors are, you’ll save the most through debt settlement by negotiating with the original creditor BEFORE the account charges off. In other words, you could find yourself paying more, sometimes much more, when settling with a 3rd party.

The article in the Detroit Free Press seems to suggest that the CRN member was still hoping debt settlement would work for her by saying “She’s crossing her fingers that this arrangement works.” It did work. She enrolled with CRN in September of 2009 and completed her settlements in March 2010. She got out of debt in 6 months rather than the 3 to 5 years it would have taken her to resolve her debts if she had filed for chapter 13 bankruptcy instead or the average of 4 to 5 years if she had enrolled in a debt management plan.

Credit Reporting

Debt settlement is an option for someone who can no longer continue making timely payments on their debts and whose credit score is, therefore, either already suffering, or soon will be.

What happened to the credit score of the CRN member quoted above?

The CRN member gave me permission to share an excerpt from an email exchange I had with her on 3/22/10:
“…Two days ago, I re-ran my credit and 3 of the 4 settlements had already posted. My credit was already 671-677 from each of the three bureaus! I think my credit ranged from 670-710 in the year prior to starting the settlement process so this is amazing.”

The effect of debt settlement on an individual’s credit score will differ based on several factors, so please do not take the experience of this CRN member as an indicator of what will happen to yours.  The points here are: Getting out of debt should be your first priority, and once you do, your credit will bounce back regardless of the option you choose to get out of debt.

The US economic engine is based on roughly 70% consumption. In a tough Michigan economy, this CRN member and her family can return to responsible spending in 6 months rather than 3 to 5 years. Furthermore, not only did she avoid bankruptcy, but also, her creditors got something rather than 90% odds they would have gotten nothing were she to have filed chapter 7 bankruptcy.

If you find yourself running out of money before you run out of month and live in Michigan (or anywhere in the US for that matter), please call CRN a call at 1-800-939-8357 when you are considering debt settlement as one of your 3 legitimate options to deal with debt.

Michael Bovee
CRN President

FICO Data Reveals That Settling Your Debts Damages

Your Credit Scores Less Than Filing for Bankruptcy

FICO, the company that calculates consumers’ FICO scores — the scores that are the most widely used by American creditors to determine whether or not they will extend credit to a particular consumer and the terms of that credit — recently released data showing how different negative actions consumers might take in regard to their credit will affect their scores. Among other things, the data shows that settling your debts is far less damaging to your FICO scores than filing for bankruptcy. In other words, the data helps make the case for why settlement rather than bankruptcy is an excellent alternative for many cash-strapped consumers, assuming that they either settle their own debts or work with a reputable settlement firm that charges fairly for its services.

The data released by FICO and available on its web site at: http://www.myfico.com/crediteducation/questions/Credit_Problem_Comparison.aspx, shows that as a consequence of filing for bankruptcy, consumers may see as much as a 240 point drop in their FICO scores. In contrast, if they settle their debts, their FICO scores may drop by 125 points at most. Interestingly because of the way that FICO scores are calculated, when consumers have higher scores prior to either filing for bankruptcy or settling their debts, their credit scores are harmed more by settlement or bankruptcy than are the scores of consumers who had lower FICO scores to begin with. According to FICO, the reason for this difference is that the scores of lower scoring consumers already reflect their credit missteps.

Despite the FICO data, I must caution you not to base your decision about which debt relief option to pursue based on that information. All debt relief options — credit counseling, settlement and bankruptcy — will have a negative effect on your credit histories and/or FICO scores for some time. (See my recent blog, Debt Relief Options vs. Your Credit Score).

When you are deciding how to deal with your debt, your primary concerns should be gaining a clear understanding of how each option works and its pros and cons, and determining whether the numbers associated with a particular option make sense for you. For example, your first test if you are considering settlement should be whether or not you can accumulate the money you need to fund your creditors’ settlement offers before your risk of being sued by them for what you owe begins to escalate. If you cannot come up with the money you need to settle your debts relatively quickly, then bankruptcy is probably your better option.

For free help determining which debt relief option would work best for you, fill out CRN’s consultation request form.

Media’s Lack of Understanding About Debt Settlement’s Potential for Consumers

is Frustrating and Bad for Consumers

Sure, there are exceptions, but I’ve found that most media run the other way when it comes to covering debt settlement. They seem completely unwilling to get educated about do-it-yourself settlement options and about ethical debt settlement firms like CRN, that provide debt-stressed consumers with a valuable service and charge them fairly for that service, unlike most debt settlement firms. Instead, they either ignore debt settlement or they paint debt settlement firms with a broad brushstroke, characterizing every firm in the industry as a rip off.

Not only is this characterization unfair to those members of the settlement industry that truly want to help consumers get out of debt, but it’s also unfair to consumers who are burdened down with debt and looking for a way out. If they work with the right firm, debt settlement can be a great solution for many of those consumers. Yet, most media reports scare consumers about settlement and warn them to steer clear.

With countless consumers struggling to deal with mountains of debt and with the consumer bankruptcy rate on the rise, the media is doing consumers a disservice by not providing them with fair and balanced information about debt settlement. By fair and balanced I mean:

• explaining the goal of debt settlement

• detailing when settlement is an appropriate option and how it compares to other debt management options

• educating consumers about how to settle their own debts and the resources available to help them

• telling consumers how to chose a reputable debt settlement firm

• warning consumers about the warning signs that a firm is not on the up and up

So, I am issuing the media a challenge: Get informed about debt settlement! Understand how it can (and should) work and who it’s right for, warn consumers about the bad firms, and inform them about the good ones. Under the right circumstances, debt settlement can be a great option for consumers and every bit as legitimate an option as debt consolidation, working with a credit counseling agency or filing for bankruptcy. So, it’s time for the media to inform consumers who are drowning in debt that there is another option available to them — debt settlement.

In a recent blog post written by Diane Stafford with the Kansas City Star entitled: Bankruptcy filing thwarts re-employment, Stafford highlights a key reason why consumers who can qualify for a Chapter 7 liquidation of debt bankruptcy should research ways to avoid it, if at all possible.

One of the primary benefits of filing for Chapter 7 bankruptcy is that your unsecured debt, like credit card debt, gets discharged or wiped out, which gives you the financial fresh start you need if you are strapped with too much debt. However, as Stafford points out, not only will your bankruptcy be part of the public record and noted in your credit report for 10 years, but in today’s job market having that information in your credit file can make it much more difficult to find a well-paying job. That’s because there is a lot more competition for good jobs and so many employers are using other criteria besides an applicant’s resume and references to help them decide who is the “best” person for the position they want to fill. In many instances, one of those criteria is whether an applicant has filed for bankruptcy. The theory is that if an applicant can’t manage her own money, then she probably has bad judgment and would not make a good employee. Of course, as Stafford points out, this attitude does not take into account why an applicant filed for bankruptcy. For example, the applicant may have an ex-spouse who is not paying her the child support she is legally entitled to or the applicant’s health insurer is refusing to pay many of the medical bills associated with his wife’s serious illness.

Therefore, professionals who have been downsized or are concerned that they may lose their jobs should recognize how easy it is to hit the debt wall when they are out of work and should take aggressive steps to address their debt. Although filing for bankruptcy is an option to consider, they should also consider other alternatives, like debt negotiation. Debt negotiation has proven to be an effective option for credit relief and can prevent a bankruptcy from appearing on your credit report.

Debt negotiation involves contacting your creditors, such as the banks that issued you credit cards, to try to reach a compromise with them regarding how much money you’ll have to pay to pay off your accounts. Your goal during your negotiations is to get each of your creditors to agree to take less than the outstanding balance that you owe and for the amounts that that they agree to accept to be amounts you can afford. These negotiations are typically predicated on your having missed several consecutive payments on your accounts and on your ability to establish that a hardship — like a job loss — has made it impossible for you to pay your outstanding balances.

Until recently, large creditors, especially banks that issue credit cards, have had long-standing policies regarding when they will offer a settlement to a consumer and when they will consider a settlement that a consumer offers to them. Now however, given the current state of our economy, the troubles within the banking sector, the financial industry’s new focus on risk aversion, and increases in account charge off percentages, many banks have not only become more willing to settle credit card debts, but they are also willing to settle for less money than they would have agreed to in the past. This is good news for debt stressed consumers.

In her blog, Stafford mentions the plight of one professional who might have been able to avoid bankruptcy if he had pursued debt settlement after he lost his job. She writes: “I heard from a professional who lost his job in a March 2008 downsizing at Sprint and began a so-far fruitless job search. His severance ran out, he and his wife depleted three 401(k) savings accounts and used up other savings. They pinched all the pennies they could and are trying to keep their home through a Fannie Mae Loan Modification program.”

The plight of that individual sounds very similar to stories I hear all too often. After losing a job, or experiencing a cut in pay, consumers are optimistic that things will work out for them and so while they are looking for work, they use up their savings and draw down the money in their 401(k)s so they can pay their living expenses and their debts. However, once their money runs out and they are still jobless, many of these consumers end up in bankruptcy. Although I am not criticizing the optimism of these consumers — they need it to help them get through the tough times ahead — I am suggesting that many of them might have made better use of the money in their savings and retirement accounts by using it to settle with their creditors. That way they could have avoided bankruptcy and possibly made it easier to find new well-paying jobs.

Although there always has been and always will be consumers who will benefit more from a Chapter 7 than from negotiating their debts, the fact is that many debt-stressed consumers who do file were actually excellent candidates for debt settlement.

If you have hit the debt wall and want to learn about all of your debt management options, including debt settlement, visit Consumer Recovery Network. While you’re there, become a member of Consumer Recovery Network (CRN), with no risk to you, and find out if you should pursue debt negotiation.