Debt Settlement program, overview, services, fees, questions

What is Debt Settlement?

Debt settlement is a process where creditor accepts a sum lesser than the original amount from the debtor and regards it as full payment. Since debt settlement entails negotiating with your creditors, it is always a good idea to seek help from a competent debt settlement lawyer or debt settlement company. Hiring a good debt settlement company or debt settlement lawyer, experienced in handling successful debt negotiations, is the best way to get your debts settled.

How debt settlement works?

In order to settle your debts, you or the company/lawyer you hire negotiates with the creditor to arrive at an amount that is acceptable to both the parties. Debt settlement usually reduces about 25% to 50% of your outstanding debt amount. A skilled negotiator can get your payable amount reduced up to 60%. In every settlement case, the settlement amount can be paid off in a lump sum or in in stallments.

Duration of a debt settlement program

The duration of a debt settlement program usually depends upon the total number of debts, the kind of debts, the total amount of the outstanding debts which a debtor intends to settle, and the amount the debtor can afford to settle for. In general, settlement cases get completed in about 15 to 36 months. The more you can pay, the earlier your debt gets settled.

Benefits of Debt Settlement

Debt settlement helps you by:

• Keeping you from the paying total owed amount, unlike debt consolidation.
• You are relieved of your debts much faster.
• You avoid the hazards of bankruptcy.
• Putting an end to harassing and abusive collection calls.

How debt settlement program begins?

When a debtor enrolls in a settlement program, his/her monthly payments to the company get accrued in a trust account for the first two or three months. The debtor can access the account through his/her secure login area. Once enough money has been deposited into the account, the company initiates the negotiation procedure with the creditors.

Pitfalls of debt settlement

Everything comes with its share of positives and negatives. Amidst all the help that debt settlement offers, there are also certain pitfalls that a debtor needs to be aware of.

First, debt settlement damages your credit score when you first enroll. However the damage is not permanent, or as bad as with bankruptcy. As your debts get settled, they are reported as “settled” or “paid” to the Credit Bureau and your credit score recovers.

Second, the IRS views all exempted debts as taxable income and debtors are expected to pay taxes on the amount forgiven unless the debtor can show they were insolvent on the day before the debt was forgiven. Moreover, debt settlement with a professional debt settlement company involves added costs of hiring the company.

However, the worst threat comes from debt settlement companies that perpetrate scams. So, before you put your faith in a debt settlement company, ensure that the company is affiliated with the Better Business Bureau (BBB).

Debt Settlement Fees

A good debt settlement program is an excellent way to avoid bankruptcy. It is always advisable that you hire a settlement company to give you the professional advice you need.
Every company that does debt settlement charges fees that include the company’s expenses for negotiating with your creditors, and any repayment services they provide. Usually, the total amount of the company’s fees is less than half of what a debtor owes.

Settlement fees charged by a professional debt negotiator or arbitrator depend on the following:

1. Amount of the debtor’s savings
2. Amount of the debt submitted for negotiation

State laws also impose certain regulations which an arbitrator must strictly adhere to while charging his fees. These fees can be paid upfront or on a monthly basis. If you decide to pay upfront, the fees are usually deducted from the first payments the debtor makes to their settlement company.

You can always compare Oak View Law Group's fee structure with that of any other debt settlement company in order to get a fair idea about the costs involved in a settlement process.

Frequently Asked Questions about Debt Settlement

1. How will debt settlement affect my credit score?

When you first enroll in a debt settlement company, your credit score will go down. However, as your creditors report your accounts as “paid” or “settled” your credit score will recover.

It is true that debt settlement is a great way to prevent the hazards of filing bankruptcy. Yet, it is equally true that it may affect your credit score adversely if your debts are current and you have a good credit history. It is because as you begin settling your current debts, your debts become delinquent, lowering your credit score. However, that is just a temporary phase. As your debts get settled, they appear as “paid” or “settled” on your credit report. And this enhances your credibility as a debtor in future.

2. Do I have to be late on my credit card payments to be eligible for your program?

No. Our debt settlement program offers debt settlement help to debtors who are current on their payments as well as those who have defaulted.

3. How do I know if I qualify for your program?

You need to have a certain amount of unsecured debt in order to qualify for debt settlement. You should talk to one of our experienced and friendly counselors to find out if debt settlement is the right option for you. At the end of the free consultation, we would let you know if you qualify for the program, and if not, then what other options you may consider.

4. Will the debt settlement program work for all of my creditors?

Debt settlement programs only work for unsecured debts. The following are the debts that can not be paid off in a debt settlement program:

• Secured debts (debts borrowed against some collateral).
• Debts where the creditor has started a collections suit or obtained judgment from a court.
• Student Loans
• Debts imposed by the state or federal government such as child or spousal support or tax debt, child support, alimony, or back taxes.

We cannot guarantee that each of your creditors will accept a reduced amount in satisfaction of your outstanding debt. However, it typically costs the creditor more time and money to pursue other collection methods, with no guarantee that they will collect the full amount. If creditors agree to a settlement, they get a portion of the outstanding debt.

5. What can I expect as a result of your debt settlement program?

If we are successful, you can expect a considerable reduction in the amount of your debt. Most creditors agree to settle debts within 25% to 60% of the outstanding balance.

When you enroll in our debt settlement program, your financial situation is thoroughly analyzed by our debt counselors. And after your free consultation, the counselor gives you a detailed idea of what to expect from the program.

6. Will all of my debt be eliminated when I finish the debt settlement program?

If you include all of your unsecured debt on the settlement program, make all of your payments, and follow all of the program procedures, you can expect to get all of your unsecured debt eliminated. However, you will still be responsible for your secured debts i.e. mortgages, auto loans, etc, and unsecured debts that you did not include in the program. Our debt settlement services aim at resolving your debt issues as much as possible.

7. How to decide between bankruptcy and debt settlement?

Bankruptcy seem unbearable, whereas chances of affording debt settlement look dull. If you are in a similar fix, then start with a monthly budget right now and list down all your income and expenses for a month.

We offer a budgeting tool as part of your client intake process, which helps you take the right decision when you are in a fix. If you owe $50,000 and can save up at least 50% of the amount (i.e $25,000) in approximately 40 months ( $625 every month), then debt settlement is the option for you. Otherwise, filing for bankruptcy is the most logical answer to your problems. Our budgeting tool is also available in the secure client area.

8. What is the difference between secured debt and unsecured debts?

Secured debts are loans which are borrowed against some asset (your home, your car, jewelry, etc). Your assets stand as a guarantee to your creditor and if you fail to repay the debt amount, the creditor may repossess and sell off the asset in order to recoup or reduce your owed amount. If the amount your collateral is sold for is less than the amount you owe, you remain liable for the difference.

An unsecured debt is money that you borrow without collateral. If you fail to repay an unsecured debt the only thing the lender can do is try and retrieve the money by either convincing you to pay or taking legal action. Credit cards, medical loans and personal loans are the most common types of unsecured debts.

9. How long will the debt settlement program take?

The duration of a debt settlement program varies depending on total number of debts, kind of debts, the total amount of outstanding debts that a debtor intends to settle, and the amount the debtor can afford to pay towards his/her debts. We try to settle most of our cases within 15 to 36 months or sooner.

10. Will interest charges continue to accrue on my debts?

Yes. However, you do not need to worry about these charges. In most of the cases our skilled negotiators can get these charges eliminated or significantly reduced when negotiating with your creditors.

11. What are the tax implications of debt settlement?

The IRS deems any amount forgiven by a creditor as income to the debtor in the tax year in which the debt is settled. Your creditors are required to report any amounts forgiven to the IRS and State revenue departments as well as send you a 1099-C for you to include on your income taxes.

If you were insolvent, that is, your liabilities exceeded the value of your assets on the day before your debts were forgiven, then you do not have to pay taxes on your cancelled debts. In that case, you will have to fill out IRS form 982 and submit it with your tax return.