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Scoop on Debt Settlement Companies


2ndTimeAround
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I don't work for a debt reduction company, I work in an Attorney Office as a legal assistant. The reason for my post is just want to get the facts straight about 3rd party Debt Reduction. I have seen it actually helps out people, though it is mind boggling the number of people that don't know how to manage their money.

By you doing yourself - a lower settlement with your credit cards, you probably saved a few bucks - congrats you did what many others can't do. Here's the scoop on Debt Settlement for others to read.

If you can negotiate a lower settlement with your revolving debt, the down side to this is coming up with a lump sum to satisfy the account.

What is listed on the CR - can actually drive a score from raising slowly /quickly. Make sure you tell your debtors you want your CR to reflect "settled as agreed". Instead of your credit report can show "settled at a lesser amount".

On the other hand - going through a debt settlement company, one doesn't have to come up with the lump sum to settle the account. There are 1yr, 2yr, 3yr, 4yr, and 5yr payment plans that are available. A person can choose how soon to finish paying. Compared to making minimum payments on credit cards - which is designed to pay on for 30 years.

The way the process works - you stop paying all together on your credit cards. Instead you are making one payment into a trustee account. Most of the time the payments into the trustee account, are lower than what was originally paid to the credit cards. After four the five months with a balance in the account, an offer is made to the credit card with the smallest balance.

I have negotiated one of my credit cards earlier this year and settled for 50% of the original balance. Thought going through a debt settlement company, the settlement percentage can be much lower.

The industry standard fee for debt reduction companies is 15%, example a person had $50,000 of credit card debit. Settlement is at 35%, resulting settlement $17500k. There by saving $32,500, out of which the fee is $7,500.

Point - If you have a balance small enough to negotiate on your own, that is the best course of action. However if you owe $30k, $40, $50k, up to $100k, it would be prudent to speak to a legal councilor.

:)

Edited by 2ndTimeAround
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We've gone through the debt fixer routine many times in the past. Here's some negatives you left out...

1. Debt fixers are really collection agencies that use the "more flies with honey" appproach to getting debtors to "pay up". They have contracts with specific creditors. If all your creditors are not covered by their contracts (the debt fixer usually does NOT tell you which are), the ones who aren't covered don't get "negotiated" with...and usually wind up suing.

2. The IRS expects you to pay taxes on the "found income"....which is the difference between what the CC says you owe and what you settle for. So, in your example, you get to pay taxes on $32,500. The IRS doesn't recognize a debt fixer fee as a deduction.

3. Having a debt fixer involved negates your rights under the FCRA and FDCPA.

4. If the debt fixer sets up and manages the "trust" account, you stand a very real chance that the debt fixer will take off with your funds before the debt is settled. Search the board here and you'll find many examples.

IMHO, if the money you owe is too much to settle on your own, consider bankruptcy. It actually does less damage to your credit rating than a debt fixer will, and you have the BK court's protection to make sure that everything is handled correctly.

Edited by willingtocope
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Legitimate Debt Settlement companies are out there even if poster Astiman has not found them.

The truth is that Debt Settlement is a viable option to getting out of debt, even Mastercard admits this on their website: http://www.mastercard.com/us/personal/en/learningcenter/debtknowhow/payingoffyourdebt/debtreductionsettlements.html

Poster willingtocope makes several statements that are not entirely true:

True debt settlement companies are not collection agencies. Collection agencies are companies that purchase bad debt from creditors and then attempt to collect on that debt. A debt settlement firm is a company that actually re-negotiates the amount of debt you have to gain a settlement amount that is paid to the creditor.

Are you paying someone else to do what you can do? Perhaps - let me explain:

An individual can settle their own account, in most cases they will not obtain the same amount of debt reduction or appropriate payment terms as a professional firm can obtain for a variety of reasons:

1. A professional firm settles debt everyday so they know how to get the best deals with strategies including aggressive one-on-one negotiations or presentation of a portfolio of accounts with a settlement offer which allows the creditor to clear many bad debts at once - this last method an individual does not have access to.

2. The creditor already has a bad experience with the debtor in most cases - so their settlements will normally have to be paid in lump sum within a few weeks of the offer. A professional firm is typically able to negotiate out a payment schedule on the settlement so the debt can be paid off over time. Most people can not afford the lump sum settlement so even gaining a settlement on their own typically does not help them - and the credit card companies know this!

So hiring a professional usually saves more than the expense of the service and even makes debt settlement a possibility for the customer by obtaining structured settlements with payment plans. So if you save more than the amount of the fees the service really pays for itself - it is like getting paid to a let a professional do the work for you!

While I am not a lawyer I do believe the poster willingtocope is incorrect in that debt settlement does not negate your rights under FCRA or FDCPA. Perhaps an actual attorney can weigh in on this matter as I do not believe your rights are waived simply because you have chosen to hire a professional to do this work for you.

Also, the statement that a firm can run off with your trust account is purely speculation. A reputable company establishes a trust account for the security of the individual. A professional firm establishes the trust account at a bank in the customers name - and does not just make a statement that they hold the money in trust (run from these companies). An account established at a bank has to follow federal banking laws which limit account access and the bank will only follow what is in a written agreement or the account holders instructions. Otherwise the bank is in violation and would be liable to repay the funds to the account holder for any unauthorized funds transfers.

Also, Bankruptcy is the worst thing you can do to your credit record - it remains on your record for 10 years and is public record for 20 years which means it can also affect your ability to get certain jobs and can definitely affect your ability to obtain credit in the future.

Also, not everyone can qualify for a bankruptcy with the changes in the bankruptcy laws in the last few years. Now there are means tests, classes and the high-upfront fees that you must pay to secure a lawyer to do your bankruptcy (or you could use Astiman's position that "you are paying someone to do what you can do yourself" but this is not great advice here either).

Debt settlement will also impact your credit record but it is not a mark for 10 years like a bankruptcy. Anything other than paying your bills on time every month without failure will negatively impact your credit. The real question is - do you want to get out of debt? If so, how are you going to do it? - there are only 4 choices:

1. Pay your accounts off on your own

2. Credit Counseling (here they help reduce interest and set a payment schedule - no reduction in monthly out of pocket and still have to pay interest and the entire principal)

3. Debt Settlement (elimination of future interest charges, typically a reduction in out of pocket monthly expenses, reduction in principal)

4. Bankruptcy (depending on eligibility either Chapter 7 - liquidation and elimination of debt or chapter 11 - restructured debt and payments until discharged plus attending credit classes).

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Legitimate Debt Settlement companies are out there
So are people that go around handing out checks for a $1,000,000 to total strangers, but I've yet to find one.
Yes, MC admits this. And, they have contracts with companies that do this. They're called debt collectors.
True debt settlement companies are not collection agencies. Collection agencies are companies that purchase bad debt from creditors and then attempt to collect on that debt. A debt settlement firm is a company that actually re-negotiates the amount of debt you have to gain a settlement amount that is paid to the creditor.
Collection agencies don't buy debts. Junk debt buyers buy debts. CAs are hired by original creditors or junk debt buyers to hassle debtors. Debt fixers use the "more flies with honey" approach, but, they still have contracts with original creditors to handle settlements for them.
1. A professional firm settles debt everyday so they know how to get the best deals with strategies including aggressive one-on-one negotiations or presentation of a portfolio of accounts with a settlement offer which allows the creditor to clear many bad debts at once - this last method an individual does not have access to.
Just like collection agencies....
2. The creditor already has a bad experience with the debtor in most cases - so their settlements will normally have to be paid in lump sum within a few weeks of the offer. A professional firm is typically able to negotiate out a payment schedule on the settlement so the debt can be paid off over time.
Just like collection agencies...
So hiring a professional usually saves more than the expense of the service and even makes debt settlement a possibility for the customer by obtaining structured settlements with payment plans. So if you save more than the amount of the fees the service really pays for itself - it is like getting paid to a let a professional do the work for you!
Only difference is whether the debtor pays the CA directly or the OC pays the CA out of the settlement.
...that debt settlement does not negate your rights under FCRA or FDCPA.
...links at the top of the page.
Also, the statement that a firm can run off with your trust account is purely speculation.
Do a search on the forum. I can think of at least 4 instances where this has happened.
- there are only 4 choices:

1. Pay your accounts off on your own

4. Bankruptcy (depending on eligibility either Chapter 7 - liquidation and elimination of debt or chapter 11 - restructured debt and payments until discharged plus attending credit classes).

Sorry, only two choice. and for BK, its either 7 or 13 for a consumer. And, in effect, BK13 is debt settlement with the BK court involved to make everyone play nice. With a debt fixer, you get no such protection.
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Since poster Amerikaner83 asks - I work for Lincoln Drexel. We are a debt settlement firm. We are not a collection agency. We work with individuals in negotiating settlements with their creditors. We do not have any contracts with any creditors.

And, just because I work with a debt settlement company does not mean the information in my post is instantly wrong. It is informative and should be used if someone is evaluating whether or not to use a debt settlement company (that is any debt settlement company) - we want the protection for the consumer as well. The horror stories we here are from people who did not understand the process or did not do their research to know if a firm is legitimate. RESEARCH and INFORMATION is key.

As willingtocope mentioned in her reply to my post - I did mess up on the BK number (Chapter 11 is for businesses, Chapter 13 for consumers - my mistake, sorry).

I also have personal knowledge of several collection agencies who actually purchase debt (maybe they are both a CA and a JDB). In former jobs I sold equipment to them

Also, in response to willingtocope - those 4 instances you know of where someone's money was taken do you know if the person verified that the trust account was established in their name at a bank? I know in our paperwork it is very clear and the account application from the bank where the account is established is included and each customer is to verify that there's is the only name on the account. We do not have access to their funds so any transfer has to be specifically authorized by the account holder. This is a true trust account - not a "trust me account" where someone is saying they are setting aside your money... I too have heard from people the horror stories of choosing a firm that is not reputable - key words are when they say "we pool your money with others." -- We always recommend our customers do their research, know who they are dealing with - a reputable firm is not afraid of people knowing who they are.

And your response that there are only 2 options to get out of debt is very misleading to the people who rely on this forum for good advice. You may not agree that the other 2 options are good for you or that you would choose those options for yourself but they may be good for other people.

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"Legitimate Debt Settlement companies are out there even if poster Astiman has not found them."

Well, "poster Astiman" has worked in banking/financial services for 35 years and has yet to see a legitimate company to "fix" or "settle"

debts.

And, LD, you say you Work for a debt settlement company.

Wow, what a coincidence....

Other posters and reader, don't fall for his/hers'/its' scam. That's what it is.I recall something about "lipstick on a pig..."

don't be fooled, folks!

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