Creditors are well aware that the likelihood of collecting any money on overdue accounts significantly decreases as the debts age. Typically, if three to six months pass without payment, the creditor will sell your account to a third-party debt purchaser. The amount these purchasers pay to acquire the debts varies, usually ranging from 5 to 20 cents on the dollar. Recognizing the rising prevalence of bankruptcies and the financial challenges many Americans face, creditors or debt purchasers often seize the opportunity to recoup an average of 50 cents on the dollar. In today’s landscape, creditors understand that waiting for the entire balance might mean they won’t collect any of the debt at all, making the decision relatively straightforward.

Debt settlement is structured to diminish the balances you owe by negotiating your unsecured personal debt with each of your creditors. The settlement amounts can vary, with some creditors agreeing to as low as 20 cents on the dollar, while others may settle for as high as 70 cents on the dollar just to close out the account. Each creditor adheres to distinct policies and procedures, influenced by factors like the age and amount owed on an account. From a business standpoint, creditors often prefer receiving something rather than nothing, as they might in a Chapter 7 bankruptcy or even a reduced payment through a Chapter 13. This is why debt settlement proves to be highly effective in negotiations with creditors.

Your credit standing is contingent on your credit status before entering the program. Typically, clients facing financial hardship do not have excellent credit initially. While in the program, your credit will be impacted. As we initiate settlements on your behalf, these actions will be reported to the credit bureaus, gradually contributing to an improvement in your credit. Therefore, as you settle your accounts, your credit score starts to ameliorate, influenced by your credit obligations and debt-to-income ratio (the ratio of your debt to your income).

Financial institutions must report savings over $600.00 (the forgiven portion) to the IRS, and customers or clients are obligated to declare these savings as income. The IRS allows you to offset any “income” from settled debt up to the amount you are “insolvent” at the time of debt settlement. You are considered “insolvent” if you owe more than you own, meaning your assets outweigh your liabilities. There are exceptions, like individuals with high home equity or an overall positive net worth, which could eliminate the insolvency exclusion. However, these cases are exceptions rather than the rule.

Garnishment actions are infrequent and do not occur without prior notice. There is a specific process that creditors must follow. Initially, they must file a lawsuit, secure a judgment, and then take the requisite steps to obtain authorization for garnishment. Additionally, only one garnishment can be active at a time. Therefore, it is important not to be intimidated by the tactics employed by collection agencies attempting to instill fear and coerce payment.

Generally, any unsecured debt can be effectively negotiated. Unsecured debt is not linked to any form of collateral. This includes credit card debt, medical bills in collections, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts—all of which can be included in our program. The primary exceptions are government-backed loans, student loans, mortgage payments, and tax payments. Tax debt cannot be discharged even in a bankruptcy proceeding.

In credit counseling, you repay the entire balance along with interest and any associated fees. In contrast, debt settlement involves paying back only a portion of your debt. This makes debt settlement a quicker method for achieving debt-free status, resulting in less money coming out of your pocket. This increased cash flow can help you catch up on your everyday expenses.

Credit counseling only works with clients in “good standings” with their creditors, and if an account is charged off, it is not eligible for enrollment in their program. On the other hand, debt settlement accepts charged-off accounts.

Secured debt, IRS debt, personal debt (debt between two private parties), home mortgages, utility bills, auto loans, government loans, student loans, and federal and state taxes are examples of debts that cannot be included. While some of these accounts may be unsecured, their government backing or affiliation prevents them from being eligible for inclusion in the program.

Creditors will employ almost any means necessary to collect a delinquent account. Suing someone incurs costs, and a legal judgment is essentially just a piece of paper unless there’s a viable method for obtaining payment. The threat of litigation is a common intimidation tactic employed by creditors during their collection efforts. Scare tactics are used to prompt payment on overdue accounts. While there is a possibility of a lawsuit being filed against you, most creditors prefer working out a negotiation rather than spending additional funds on legal action (with no guarantee of collecting any amount from a judgment). This is why many settlement companies successfully negotiate thousands of accounts, saving substantial sums of money. Creditors find it more pragmatic to secure something rather than nothing.