Debt settlement is the process of negotiating with creditors to reduce overall debts in exchange for a lump sum payment. A successful settlement occurs when the creditor agrees to forgive a percentage of total account balance. Normally, only unsecured debts not secured by real assets like homes or autos can be settled. Unsecured debts include medical bills and credit card debts - not student loans, auto financing or mortgages. For the debtor, this makes obvious sense, they avoid the stigma and intrusive court-mandated controls of bankruptcy while still lowering, sometimes by more than 50%, their debt balances. Whereas, for the creditor, they regain trust that the borrower intends to pay back what he can of the loans and not file bankruptcy (in which case, the creditor risks losing all monies owed).
Negotiating with a collection agency or junk debt buyer is somewhat similar to negotiating with a credit card company or other original creditor. However, many collection agencies (or junk debt buyers) will agree to take less of the owed amount than the original creditor, because the junk debt buyer has purchased the debt for a fraction of the original balance. As a part of the settlement, the consumer can request that collection is removed from the credit report, which is generally not the case with the original creditor. Even if the removal of the collection account from the consumer credit report has been successfully achieved as a condition of settlement during negotiations, the negative marks from the original credit card company will still remain.
Debt settlement, also known as debt arbitration, debt negotiation or credit settlement, is an approach to debt reduction in which the debtir and creditor agree on a reduced balance that will be regarded as payment in full.
Debt settlement is often confused with debt consolidation. In debt consolidation, the consumer makes monthly payments to the debt consolidator, who takes a small fee and passes the rest on to the creditors; this way, creditors continue to receive payments each month. In debt settlement, the consumer makes monthly payments, that are put into a "trust" or "special purpose" account. The creditors get nothing until they decide to settle. Furthermore, the consumer does not make any further payments to creditors. The intended effect is to scare creditors into settling the debt for less than the full amount. As long as consumers continue to make minimum monthly payments, creditors will not negotiate a reduced balance.
Consumers can hire a lawyer to act for them, or use debt settlement companies. In a New York Times article Cyndi Geerdes, an associate professor at the University of Illinois law school, states "Done correctly, (debt settlement) can absolutely help people". However, some settlement companies may charge a large fee up front; or take a monthly fee from customer bank accounts for their service, possibly reducing the incentive to settle with creditors quickly. Experts advise consumers to look for companies that charge only after a settlement is made, and charge less thant 20 percent of the amount by which the outstanding balance is reduced.
Settlement companies generally package their settlements into a larger bulk settlement with the creditor for 35% - 50% of the existing balances. The debt settlement companies typically have built up a relationship during their normal business practices with the credit card companies and can come to a settlement agreement quicker and at a more favorable rate than a debtor acting on their own. With the current economic crisis, more and more credit card companies may be willing to settle existing credit card debts rather than add to their already large written off bad debt.
HOW MICHIE LAW FIRM HELPS
First, we charge NO upfront fees. We are only paid if we settle your debt on terms approved by you.
Second, we are a law firm, and a lawyer will negotiate your settlement, not a "relationship manager," an "associate" or other unlicensed person.
Third, as you build up your funds for the settlement payment, they are placed is a lawyer trust account monitored bt the State Bar of California. No "monthly fees" are charged as you accumulate your funds for settlement.
Finally, our fee is only 15% of the debt amount, lower than every debt settlement company that we have reviewed. Why pay more for a debt settlement company operated by unlicensed persons, when you can pay less to retain a licensed law firm that has been here to help since 1981?
Contact us now at email: doug@michielawfirm.com telephone: 805-643-9500