Debt settlement is an alternative to filing for bankruptcy that accomplishes many of the same goals. A debtor obtains relief from abusive calls, harassing letters and other oppressive efforts to collect on past-due debt. A debtor also receives peace of mind and relief from worry and stress. This is particularly true once debt settlement negotiations begin. Here at Guardian Litigation Group, we can help. We are experienced and tenacious negotiators and we can be aggressive when needed. Our mission is to help you and become your trusted ally in the fight for debt relief.
As the name suggests, debt settlement is a negotiated settlement with one creditor or several creditors. The goal is to reduce the total debt due and/or monthly payments.
Possible settlement options include one or more of the following:
- Reducing the total debt: Some creditors will agree to cancel some portion of the debt owed if the remainder can be paid back quickly or if there is more certainty that the remainder will be paid
- Reducing the interest rate: This can help lower monthly payments
- Extending the term of payments: Again, this can lower monthly payments
- Eliminating fees, penalties and collection costs: This reduces total debt and often reduced monthly debt
- Converting unsecured debt into secured debt: Typically, the newly secured total debt is significantly lower than the original debt; this can help reduce total debt and monthly payments
- And more
It may sound odd to suggest that creditors would willingly negotiate to reduce debt and interest rates and eliminate fees. There are good business reasons why creditors would agree to debt settlement efforts. First, if the collector is the original creditor, from its perspective, partial repayment is better than receiving nothing, or near to nothing, if the debtor decides to file for bankruptcy. In the same way, if the debt collector is receiving NO payments currently, negotiating a settlement that results in payments starting again is a good result for the creditor even at a reduced amount. Again, from a business perspective, partial payment is preferable to receiving nothing.
Second, many debt collectors are one to several degrees away from the original creditor. Often, difficult-to-collect debt is sold to debt collecting companies for a fraction of the “face value” of the debt (often with many debtors bundled in groups). Sometimes, this is how original creditors can receive some partial payment instead of nothing. Debt loss or credit risk insurance can also be a factor. Depending on the insurance product, a creditor may obtain insurance reimbursement for debt that cannot be collected. For example, assume a medical services company has an outstanding invoice for one debtor in the amount of $10,000. After a certain amount of unsuccessful efforts to collect, that debt might be sold to a debt collection company for, say, $2500. This may be a “good” business decision and cost effective for the medical services company since it obtains twenty-five cents on a dollar which is better than receiving nothing. If they have insurance, some portion of the remaining $7,500 might be recovered by a claim on the insurance carrier.
This is also a “good” business decision for the debt collection company which will still seek to collect the full amount. But, now the debt settlement negotiations are with the debt collection company. As you can see from our example, the debt collection company might happily negotiate a settlement and take $5,000 in satisfaction of a debt it bought for $2,500.
Because there are good and sound business reasons for debt collectors to engage in debt settlement negotiations, the efforts often succeed.
Contact an Experienced Debt Relief and Debtor Rights Attorney
For more information, contact the Debtor’s Rights attorneys at Guardian Litigation Group. We have the tools and experience you need. Our Mission is to provide unparalleled legal services and support to financially distressed individuals. We can be reached via our contact page.