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Debt Settlement
Angry creditors often go to great lengths to recoup their money from borrowers. Their tactics can include sending threatening letters, making harassing phone calls, threatening to seize property, involving collection agencies, and filing lawsuits. This constant badgering can cause profound anxiety in individuals already stretched thin by difficult financial circumstances.
Debt settlement is a process that allows cash-strapped borrowers to "bargain down" their debts as opposed to paying them down. The process often takes years and can involve lots of back and forth with creditors.
Why would creditors agree to slash debts, freeze or excuse fees, or lower rates for delinquent borrowers?
The reason is if a debtor declares bankruptcy, there's a good chance that the creditor will see no money at all. In other words, it's in a creditor's financial interest to reach a settlement with you before you file for Chapter 7 or Chapter 13.
Will your delinquencies show up on your credit reports, even after you've settled?
In most cases, yes; however, credit reports are more malleable than most realize. For best results:
- Take active steps to clean up your credit scores before, during, and after the debt settlement process.
- Minimize the amount of work you foist off on third-party intermediaries.
- Learn about your rights under the Free Credit Reporting Act.
Should you make informal arrangements with creditors?
No. Always get such arrangements in writing. It may also behoove you to pass any written arrangements by an attorney for review. Sure, getting this review can be costly, but think of the long-term. If you negotiate debts poorly, the jacked up interest rates you'll likely incur can cost you far in excess of your investment in assistance now.
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