How To Legally Eliminate Unsecured Debt - Debt Settlement Process Explained

Are you looking for ways to legally eliminate unsecured debt? You must have heard of the traditional method of bankruptcy filing. This method has been widely used until recently. However, after the recession and after the massive numbers of bankruptcy filings, the economic condition was so badly withered that the Federal government decided to stop the horse from running wild and came up with new and modified bankruptcy laws which deliberately restricted the filing of bankruptcy. However, the government ensured that the alternative method of debt settlement gets the boost so that the debtors can get out of their debts without much harm being done to the debtors. Settlement as a process of debt relief has only one drawback (if you think this to be one). The method is not capable of eliminating the entire debt which happens in bankruptcy filing. The maximum that can be eliminated using settlement is 70 percent and the minimum that can be achieved is 50 percent. Apart from this, there are no known drawbacks. Hence today, the debtors prefer settlement over bankruptcy.

Debt settlement process explained:

Prerequisites: The debtors looking for debt settlement will have a couple of preliminary aspects to take care of. The very basic requirement as defined by the government is that the debt needs to be at least $10k or more. The next thing that the debtors must make sure of for their own good is that if they have different debts, they need to concentrate all of them in one place to ensure that the process of settlement does not take too much of time and that the cost of settlement is also reduced. Remember that if you want to settle each debt individually, settlement of all the debts will take a huge amount of time. This is not the proper approach. You must get out of your debts as soon as possible and the only way to do so is to sum up all the debts in one place and treat them as one single debt. The final requirement is that you must have a constant income source. This is because of the fact that once settlement deal is agreed up, you will be asked to repay the amount agreed upon to the lender in bulk and this means that you must have a constant income source to ensure that you can arrange for the money by the time the deal is completed.

The initial stages:

During the initial stages of settlement, the negotiator from the settlement company hired by the debtor will ask for information relevant to the bad debt and also ask about the income options and expenditure pattern. With proper analysis of these information, the negotiator will come up with a plan for repayment and then send the plan along with a letter to the lender in which it will be stated that the debtor will not be able to repay the entire debt because of financial trouble. Further attachments as proof of choked income sources will also be sent to the lender to block any kind of legal action from the lender's end. At this point the debtor will receive the advice of delinquency from the negotiator in order to prove the financial strife as mentioned in the letter.

The middle stages:

When the debtor stops paying, the lender takes a decision of selling the debt to a collection agency for collecting the money from the debtor. However, this decision is taken by the lender after a buffer period of 12-16 weeks. Once the lender sells the debt, the collection agency agrees on paying only 20 to 30 cents against each dollar collected from the debtor to the lender. Since the lender is short of options, the lender accepts the deal. This deal is traced by the negotiator.

The final stages:

After the lender concludes the deal with the collection agency, the negotiator physically meets the lender and explains that because of the financial trouble, the debtor is unable to repay the debt in full but can still repay 30 percent to 50 percent of the total money that the debtor owes to the lender and that the payment will come in bulk. However, this is possible only when the lender wipes off the remaining due and never claims it back. The negotiator further explains that this new deal will mean 100% returns on investment for the collection agency.

The negotiator uses his expertise to put forward a threat of bankruptcy to the lender and states that in case the lender decides to go with the collection agency, the debtor will file for bankruptcy. This is the vary important warning or threat which forces the lender to cancel the deal with the agency and accept the one offered by the negotiator. The lender then signs a new agreement with the debtor and agrees to accept 50% of the payment as complete repayment of dues. The debtor will then have to repay that 50% of the due to the lender according to the terms and conditions laid down in the new agreement.

This whole process takes 1-3 years to complete and during this period, the debtor needs to ensure that he or she accumulates the necessary funds to repay the lender in bulk. This is because of the fact that if the debtor then fails to repay, the new agreement will be canceled and the debtor will then have to repay the entire amount in full.

With the new FTC laws recently passed, debt settlement is a legitimate alternative to filing bankruptcy. Creditors are ready to negotiate and now you won't have to pay a fee unless your debts actually settle.