“Easy Debt Settlement” Isn’t Really Easy

Debt settlement, also known as debt negotiation and debt arbitration, is a process through which a creditor accepts less than the full amount owed yet considers the balance as paid.

If you listen to the radio or watch TV even for a brief amount of time, you’re likely to hear an advertisement for “easy debt settlement.” This is because dozens of companies offering “easy debt settlement” are blanketing the airwaves 24 hours a day with their misleading ads.

Some of the ads that I have heard recently state that “if you owe at least $10,000.00 in unsecured debt, you have the right to settle your debt for at least 50% of what you owe.”

This is simply not true. There is no law that requires creditors to settle debts for less than is owed.

Unfortunately, many people believe that because it’s on TV or radio, it must be true. So they sign up with these debt-settlement companies, believing that they’ll be able to easily settle their credit card debts, payday loans, and other unsecured debt for fifty cents on the dollar.

Debt settlement companies tell their customers to stop paying their creditors and not to talk with their creditors — to leave this to the debt-settlement company. Usually the debt-settlement company claims it has negotiated a debt-reduction settlement with the creditor, but the customer has no way of verifying this because he/she has agreed not to contact the creditor.

Then the debt-settlement company sets up a payment plan into which the customer pays what can be a sizeable amount each month. Unknown to the customer, the first few months of his/her payments go to pay the debt-settlement company’s fees and not to paying the creditors. This results in the customer becoming delinquent with the creditor, negative information being placed on the customer’s credit report, and the debt grows larger as interest and late charges are added to the account.

I have a number of bankruptcy clients who saw or heard these debt-settlement commercials and believed that it would be an easy way to get out of debt. So they signed up and started paying a huge monthly payment to the debt-settlement companies instead of paying their creditors what they owed. Unknown to my clients, the debt-settlement company wasn’t paying that money to the creditors. So my clients were falling farther behind and before long were being sued and having their pay checks garnished.

My clients actually would have been better off had they just continued to pay what they could directly to their creditors.

Or if they really thought debt settlement was the best solution to their debt problems, they should have negotiated directly with their creditors, not through a debt settlement company.

A person has the ability to negotiate a debt settlement on his/her own. You don’t need a debt-settlement company.

In fact, I recently filed a bankruptcy for a lady who had negotiated some good debt settlement agreements all by herself on several of her credit cards. Unfortunately, not all of her credit cards were willing to negotiate so she ended up having to file a Chapter 7 bankruptcy.  The credit cards that were willing to negotiate in good faith got a sizeable chunk of what was owed them; the credit cards that weren’t willing to negotiate got absolutely nothing.