Frequently Asked Questions
What types of debts can usually be settled for less than full balance?
Typically, unsecured debts. Examples of unsecured debts include credit cards, department store cards, and medical bills.
Secured debts such as mortgages, vehicle loans, alimony, child support and student loans are difficult (if not impossible) to settle for less than full balance.
How long does the debt settlement process usually take?
It varies on a case by case basis. Sometime debts can be settled in as little as 30 days, other times it takes months before a settlement is reached. Statistically, though, 4-6 months is fairly common.
One major factor is how cooperative (or uncooperative) a person’s creditors choose to be. Another major factor is the length of time it takes for you to gather the funds for settlement purposes. Obviously settlements can not be obtained if sufficient funds are not available.
Will creditors and collection agencies continue to contact me during the settlement process?
Yes. Unfortunately your creditors do reserve the right to contact you regarding outstanding debts until they are resolved. However, there are legal and ethical ways to address the incoming collection calls to keep the minimize the disruption in your life.
Donaldson Williams has an excellent report for how to best deal with debt collectors. You can download it free here.
Can’t you just send a “cease and desist” letter to stop the collection activity?
Although you are free to do what you want, we do not recommend sending cease and desist letters.
It is true that a cease and desist letter can stop debt collectors from calling you, but that also means you cut off the lines of communication for a possible settlement.
In addition, it is known that a cease and desist letter can trigger a lawsuit with certain creditors and collection agencies.
What kind of results have people achieved through the debt settlement process?
It is impossible to predict exactly what your final outcome will be. Sometimes creditors will agree to settle for as little as $0.20 on the dollar. Other times you could run into a stubborn creditor that won’t settle for less than $0.80 on the dollar.
If handled properly, though, most credit card debts can be settled for for $0.50 on the dollar or less.
In addition, we strongly recommend that you be skeptical of any claims by companies that “guarantee” any specific settlement outcome. No specific settlement outcome can be “guaranteed” until the matter is finalized.
What effect will the debt settlement process have on my credit report?
This is one of the most frequently asked questions. The short and direct answer is that your credit score will probably get worse before it gets better. That’s the trade-off for being granted substantial debt relief without filing bankruptcy.
The cold, hard reality is that if you want “good credit” you have to pay you bills on time as originally intended. Anything less, and your credit score will suffer. That’s simply how the credit scoring system works. Unfortunately there are no tricks or gimmicks to get around this.
What happens to the interest and/or late fees during the settlement process? Do they continue to accrue?
Yes. Unfortunately creditors are not legally obligated to freeze interest and late fees just because a person wishes to attempt a settlement on their past due account(s). This is one of the main reasons why you should try and get through the settlement process as quickly as possible.
If you run the numbers, however, you will see that the amount of debt relief you will obtain by settling your account for $0.50 on the dollar (or less) will far offset any interest or late fees that have accrued during the process. Therefore, it’s a trade-off that most people will gladly accept.
Why shouldn’t I just file bankruptcy?
Maybe you should. That’s for you to decide. For many people, though, bankruptcy is considered a drastic and last-resort option for the following reasons:
- If you file bankruptcy you will be required to appear in Federal Court for at least one hearing, maybe more.
- The bankruptcy paperwork requires that you reveal all of your debts as well as all of your assets.
- Credit bureaus are entitled to keep your bankruptcy filing on your credit report for up to 10 years.
- In addition to your bankruptcy filing being listed on your credit report, a bankruptcy filing is also a matter of public record for anyone that wants to know about it. If your job requires any type of background check or security clearance, this could be a problem.
- Certain types of bankruptcy require a court-appointed trustee to control and oversee your estate.
- With a Chapter 13 bankruptcy filing, your employer will most likely be notified and automatically deduct pre-defined amounts from your wages
What if I still have questions that are not answered on this page?
I’ve done my research and have concluded that attempting settlements is going to be the best solution, both for myself as well as my creditors. What is your recommended next step?