If you have decided to enroll in a Debt Settlement Program, no doubt you have several questions and concerns. Here's how a Debt Settlement Program works:
Faced with just too much debt (basically unsecured debt) and have decided to enroll in a Debt Management Program through a reputable, professional Debt Management Program.
Most likely, you have provided the agent with the latest copies of your bill statements, collection letters, or your Free Annual Credit Report.
From time-to-time, you will need to provide the most recent information about the debts you have enrolled, so save the latest (NOT ALL!) statemenst and/or letters that you receive.
It's a good habit to fax or email (much quicker than snail-mail) these to your negotiator every couple of months or so. Your Debt Settlement Company may also ask you for a specific update once in a while.
As you learned during your interview/counseling session, rather than making payments to your creditors or debt collectors, you will have authorized an amount that you can afford each month to be deposited into a Client Reserve account with an FDIC insured bank.
As these funds begin to accumulate, your negotiator will be contacting some, but not possibly all of your creditors at once.
"Timing" is very crucial to a successful debt settlement program.
By "timing", I mean that each creditor and/or debt collection agency will accept or decline an offer to settle depending on several factors, such as:
- How old is this account.
- Your circumstances (working, unemployed, retired, disabled, etc.)
- The current balance of the account.
Again, depending on the creditor or debt collector, more favorable settlements may be negotiated a certain times of the month/quarter/year. An experienced Debt Settlement Company's negotiator will have years of experience and will have worked with most, if not all creditors and debt collectors over the years and will know when and how to get the best settlements possible.
Once a settlement has been negotiated, a SETTLEMENT AGREEMENT will be faxed or mailed to the debt settlement company.
Payment or payments (depending on the agreement) will be set up from the Client Reserve Fund per the agreement.
Once the agreement is completed, a statement or letter of satisfaction will be mailed to you and/or the debt settlement company.
They (the creditor or debt collector) should report the settlement to all three of the major credit reporting bureaus that your account has been "settled-as-agreed" or in some cases, "settled-in-full".
But, not all creditors or debt collectors do this, so again, a reputable, professional debt settlement company will assist you to make sure that your Credit Report is accurate.
Depending on the amount of debt your enrolled and the amount of your monthly deposit into the client reserve account will determine how much time your program will take. This can only be estimated as circumstances and other events may shorten or lengthen the program.
Once all of your accounts have been settled you will receive an accounting summary.
So, that is the basics of a Debt Settlement Program, but, there are other things that you need to be aware of:
What happens if a creditor or debt collector decides to file a legal claim against me, ie., start a lawsuit?
Any creditor or debt collector has the right to file a claim against you for the unpaid balance or your account.
Usually, before they do that, they will have tried to get you to pay by:
- Making many phone calls
- Sending many collection letters
Once your account has been charged off, assigned or sold to a debt collection company, you legally have the right to demand that they stop calling you at home or at work. (Unfortunately, as long as it is with the original creditor, you can't prevent the calls.)
You will need to write a letter (sometimes a fax will do) and demand, according to the Fair Debt Collection Practices Act (FDCPA) that they cease and desist all calls immediately.
To receive a Sample Letter, click below:
The calls should stop rather quickly, but if they do not, then you can file a complaint with your state's Attorney General's Office. Just go online to get the link for your state's attorney general's office/department.
Again, depending on your particular circumstances and the particular debt collection company that has you account, they may or may not decide to pursue a lawsuit.
But, if they do, here's what will happen:
(1) A Claim will be filed.
"They" (referring to the creditor or debt collector) will retain an attorney to FILE A CLAIM with the county court you reside in claiming that you failed to repay the debt you agreed to repay and now they demand legal action.
(2) You will receive a SUMMONS.
Receiving a summons is kind of scary! Usually, someone knocks on you door and asks if you are so-n-so and that you've been "served"!
Most of the time this claim is delivered by an agent of a company that does this, but in some cases, your local sheriff's office may send it via an officer!
Regardless of how you get the summons, the first thing you do is send a copy to your debt settlement company. TIME IS OF THE ESSENCE! DO NOT DELAY!
The summons will state something to the effect that you have 20-30 days from the time of delivery of the summons to give an ANSWER.
This "answer" is a legal term that you would do if you can prove that you do not owe this debt! If you have proof....I mean written, easy to see proof that you paid this debt or that you do not owe this debt for whatever reason, then you would pay the cost (you'll need an attorney and there is usually a court filing fee) of filing the ANSWER.
But, if you know that you owe the debt, then you will not file the ANSWER.
(3) Your negotiator will contact the attorney who filed the claim for the plaintiff (creditor/debt collector) and in most cases work out either a settlement for less than the balance due, or some kind of repayment plan.
This will ONLY BE POSSIBLE if you get your negotiator a copy of the summons RIGHT AWAY!
I've been negotiating with attorneys and collectors for my clients for about 15 years. In all of that time, as long as my client got me a copy of the summons quickly, I was able to stop the summons, prevent either a judgment, wage garnishment or bank levy in about 99% of the cases!
Again....TIME IS CRITICAL!
Although most creditors/debt collectors will do their homework to determine if a client could be garnished or a bank account levied after a judgment has been awarded, in some cases, they do not.
Here's what I mean....
You cannot be garnished if you are:
- Retired and receiving Social Security or Retirement Benefits
- Disabled and receiving Disability Income Benefits
- or, if your income is below the exemption level (usually around $218 per week or less, but varies by state)
- Receiving unemployment benefits, workers compensation, spousal support, child support
- And many others (click here for complete list of exemptions in Oregon)
If you own your home (or have a mortgage), a LIEN can be placed against it. This means that if and when you sell (or transfer ownership), the judgment amount (plus interest) must be paid before the sell or transfer can be completed.
Can a LIEN be removed/satisfied before selling or transferring property?
Yes. Depending on several factors, a creditor will most likely be willing to accept either a slight reduction of the balance or will accept payments on the entire amount in order to release the judgment.
If you qualify for a debt settlement program, most likely you will be able to become DEBT FREE and start to rebuild your credit score again as long as you work with your Debt Settlement Company and Negotiator.
For an idea of what an actual settlement looks like, click below: