How Does a Debt Settlement Program Work?

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.

Now what?

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:

STOP Collection Calls Free Sample Letter


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.


If you live in Oregon, here is the link.


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! 


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:

Recent Settlements See what we have  done for our clients!
















Photo Credit

Tags: wage garnishment, debt settlement, debt collectors, debt, bank levy, stop debt collector calls

Tips on the Best Ways to Deal with Debt Collectors

dealing with debt collectorsDealing with debt collectors is not easy, but it can be done.  Here are a few tips on how to deal with debt collectors.

Debt collectors have one purpose: To get you to pay up...period!  Many debt collectors are paid a percentage or commission based on how much they can get you to pay, so you need to be prepared when they call.

As you probably already know, the first tactic a debt collector will do is to call, and call, and call!

Oh sure, there are laws that are supposed to protect us from harassing debt collectors, but they don't seem to worry about them.  So what can you do?

The Fair Debt Collection Practices Act (FDCPA) spells out what a debt collector can and cannot do.  Here are just a few of the limits a debt collector can take:

A debt collector is prohibited from calling you at inconvenient times or places, such as your place of employment or business.  They are not to call before 8am or after 9pm.

Contrary to popular belief, not all debt collectors are mean, nasty or uncaring people.  Many are very professional and even courteous, but as with any group, there are some who are very disgusting individuals.

After many years of helping people deal with debt and debt collectors, I've found that it rarely helps to talk or try to explain your situation to a debt collector.  Remember, they are going to try to get you to either send money or OK a check-by-phone payment or payments.

If you know the address of the debt collector, they you can mail a letter stating that they are to cease calling you.  By law (FDCPA), once the debt collector has received the letter, they must cease calling or face some hefty fines!

While writing the letter to a debt collector usually works fine, there are some who ignore the letter and continue to call (most via a computerized dialer).  If they do, start a log of the date and time they called.  Mail your letter via Priority Mail or Certified Mail in order to have a record of it being delivered. 

Next, contact your state's attorney general's office to file a complaint.  The best way is to go online.  For example, if you live in my state of Oregon, you would go to:

Oregon Department of Justice...Consumer Protection

You could also file a complaint with the Federal Trade Commission as well.

Need help with what to say in the letter?  Click below:

STOP Collection Calls Free Sample Letter

One more long as the account is with your original creditor (say Visa or Master Card), they can call on delinquent accounts.  It was somewhere all of the fine print when you signed up for the card!  But, you don't have to take their calls and after a couple of months they will most likely farm your account out to a collector.

There are many other UNLAWFUL PRACTICES that a debt collector cannot do.  A debt collector cannot...

  • use threats of harm or violence
  • use obscene language
  • falsely claim to be an attorney (if in fact they are not)
  • misrepresent the amount you owe
  • threaten with legal action if in fact they do not take legal action
  • threaten or try to scare you into believing they can take property that you own when in fact they have no claim
  • falsely represent themselves as a government official


What can a debt collector legally do to collect the debt?

After the debt collector has sent numerous letters and has received the cease calling letter, you may not hear from them for many months.  Don't assume that the debt is going to go away! 

You may get a knock at the door one evening and a police officer or someone employed by the court will serve you a summons.  Yes...very scary, but don't panic.

I've written several articles about what to do if you receive a summons, but here are the highlights:

  • 1.  Don't ignore the summons. It will not go away on it's own.
  • 2.  Contact the attorney who filed the claim for the creditor and find out if they are willing to negotiate something on the debt.

Not sure how to do that? 

Trying to negotiate a settlement for a lower amount for less than the current balance is not a simple matter.  For a few tips to help, click below:

FREE EBook Debt Settlement  Basics


Depending on several factors, you may be able to get a sizable reduction of the balance due.  If you could use some help, let us know.  We've been helping clients resolve debt issues for many years.

Yes, dealing with debt collectors can be annoying and frustrating, but you can put a stop to the calls and possibly negotiate a settlement for less than the amount you owe. But, there are times when a debt collector may decide to go after a JUDGMENT in order to get a WRIT OF GARNISHMENT.

If you are employed and receive W-2 income, a debt collector and/or creditor can receive a garnishment of your wages.  In most states, they can garnish 25% of your net, take-home pay.  Let's say you bring home $2,000 a month.  Your payroll officer must send them $500 each month until the entire debt is repaid!


Most of our clients who call us AFTER they received the notice of garnishment from their employer admit that they just didn't do anything about the summons.

If this is you, we may be able to help stop the garnishment, but time is of the essence.  Once a garnishment is in place, many debt collectors and/or creditors are not willing to accept a settlement or repayment plan as they feel they have your "cornered".

Of course, if all else fails, you may need to consider seeking BANKRUPTCY PROTECTION from your creditors.  Losing 25% of your income is just not possible for most people who have already suffered a severe financial setback.  Bankruptcy may be your best option.



Photo credit:  I actually took this photo myself outside a major retailer. Kind of says it all, doesn't it!





Tags: debt collection, debt settlement, Bankruptcy, debt collection in oregon, debt collector, stop debt collector calls