In a nutshell, Debt Settlement is a process by which our attorneys contact your lender and negotiate a settlement of your debt for pennies on the dollar. Debt settlement is a plan to renegotiate the amount of unsecured debts you owe, so that the amount paid is less than that the principal balance you owe, yet is accepted as full payment of the debt. Many individuals who are experiencing a financial hardship due to massive amounts of debt, yet they cannot or will not file a bankruptcy, debt settlement is the only debt management method available to them.
As a concept, banks have been practicing debt settlement to deal with defaulting debtors for thousands of years. However, debt settlement became widespread in the United States during the late 1980s when bank deregulation, which loosened consumer lending practices and allowed for many Americans who never before could get credit to ultimately accrue massive amounts of debt, coupled with an economic recession placed banks in financial hardships.
In general, only unsecured debt (not secured by real assets like homes or autos) can be settled for less than owed. However, our firm has had success settling out second lien mortgages on people’s homes. Although, usually this is when the property is upside down and there is zero equity (value) in the home to pay off the 2nd lien mortgage in the event of a foreclosure.
Be wary of many of these “fly by night” debt settlement firms. Many of them are old mortgage brokers who no longer can make a living in the real estate field due to a crash in the market, therefore they are moving into the field of loss mitigation and debt settlement. These debt settlement firms usually charge a client a monthly fee for a 12-60 month term. What they do is put the client’s money into a separate bank account, which the Debt Settlement firm only has technically viewing rights to. The Debt settlement firm takes the money out of the account and pays off credit cards one at a time. The reason these firms put the money into a separate third party account as opposed to a Trust Account, is due to the fact that the California Finance Code prohibits any entity without a “Prorator’s License” from putting a client’s money into a trust account for the purposes of settling out a debt. The reason these company’s use the third party account as opposed to obtaining a Prorator’s license is because in order to obtain a Prorator’s license one must have extensive experience in debt settlement (as mentioned before all of these new companies are former mortgage brokers without any experience), plus they are capped and restricted from charging fees exceeding 5-6% of the overall debt. These companies are extorting clients by charging them upwards in the range of 15-20% of their overall debt amount.
We here at the Bankruptcy Law Center typically use debt settlement only in situations in which the client either possesses too many assets to protect in a bankruptcy, or they make too much income, thus they do not qualify under the Means Test which was implemented in the 2005 Bankruptcy Reform Act. Our attorneys have a proven success rate with Debt Settlement. Our trained staff of paralegals and Lawyers have the ability to use the threat of bankruptcy to leverage the banks into negotiating a favorable settlement, send out cease and desist letters halting collections calls, and force the banks into getting rid of your debt for an amount you can afford. Call today to set up a FREE consultation, in order to sit down with one of our attorneys and see whether you qualify to settle out your debt for pennies on the dollar.