I have been working in the Finance, credit collections and debt settlement industry for almost 16 years now and have very extensive knowledge as to how it works.
The purpose of this article is to explain to you first how debt settlement works and what the process entails; both the good and the bad. Next I will explain the differences between how a debt settlement law firm works and how it compares to a standard debt settlement company. There are many differences between how this process is handled by the two. Because of this debtors should learn these differences before enrolling into any program. Many people may already know how a debt settlement company works but have no clue as to how a law firm works and this article will explain just that.
First of all, I would like to state that debt settlement as a means of credit card debt relief is not for everyone; some people simply do not have the right state of mind, while others may benefit more from bankruptcy.
I would like to go over the purpose of credit card debt settlement and how the process works. The purpose of debt settlement is for the debtor to get out of debt quickly without having to file bankruptcy and save a lot of money in the process. The goal of the debt negotiator is to negotiate a one time lump sum payment or a term payout on the debtors' behalf at a far reduced amount than what the debtor currently owes.
The debtor could save themselves close to half of what they currently owe and be out of debt in a few years. However, as with most things in life there are drawbacks to this process and there is no way to avoid them.
In order for any creditor to be willing to negotiate a debt settlement on a debt the account must fall into default status. Creditors simply are not willing to negotiate when you are current and up to date on your monthly minimum payments. If they feel you can maintain your monthly minimums than this is precisely where the creditors want to keep you. This is where their profit is made, by just paying the minimum each month you will be in debt for over thirty years, even if the interest rate is not very high. If your rate is above 20%, you will be stuck in debt for well beyond thirty years and payback the creditors well over ten times the original balance in interest.
So understandably they will not negotiate with you when you are current and they feel they can still bank on your minimum payments for years to come. Therefore, you must fall behind on the monthly payments. Once you do this you will be negatively affecting your credit score and will also be receiving calls from collectors. Typically this is what may put some people off from doing debt settlement. For consumers already behind this will not make such a severe difference.
You must also be made aware that this process in the end will begin to help rebuild your credit. Thirty percent of your MyFICO credit score is made up of your debt to credit ratio, which will look a lot better after you get out of debt. Additionally the negative remarks from falling behind will not hold much bearing on your credit score after two years. Your credit score is only a snapshot in time and only uses the last two years of payment history to determine the score.
Now during the process of falling behind your goal is to save up as much money as possible in the quickest possible time. This money is then used later on to pay off the settlement that is negotiated by the debt negotiator. The faster someone looks to save money and complete this process the better for many reasons. The faster you are out of debt the more money you stand to save and the less risk you take from the negative aspects of settlement such as lawsuit and further damage to the credit report.
This brings us to the title of the article "How Does a Debt Settlement Law Firm Work?" As I explained above there are great benefits to debt settlement such as saving lots of money and time; and there are also some downsides such as collection calls and the possibility of a lawsuit.
The main differences between how debt settlement is handled by a debt settlement law firm and standard debt settlement company is how they deal with the negative drawbacks. A law firm has much more legal power and is set up correctly to comply with their states' laws.
Collection Calls
One of the first major differences in how debt settlement is handled has to deal with collections calls. When you first fall behind and your debt is still in the hands of the original creditor there is nothing legally that can be done to stop them from calling. However, once the creditor passes the account off to a third party collection agency which will happen anywhere between 3-6 months after falling behind things change. Legally once in the hands of the collectors a law firm will have the power to have all calls to their client stopped, and if the collector continues to call and harass the client legal action can be taken against that creditor seeing as they will be in violation of the FDCPA (Fair Debt Collections Practices Act).
So the client's first advantage by using a law firm will be a much decreased activity in collection calls, and this is very important for some people. Regular debt settlement companies that claim they can stop the calls are simply not telling you the truth and you should be very weary of them because of this.
Lawsuits
The next major advantage a law firm has concerning debt settlement is how a lawsuit can be handled. In case you are not aware once you fall behind on your credit card debts the creditors/collectors do hold the legal right to pursue you through the courts to collect the debt. I will mention, that suing is not the mainstay of the collectors and is not exercised very often; reason being it simply costs too much money and time on the creditor's behalf with no guarantee of getting any money even if they were able to obtain a judgment.
The advantage the law firm has is they can still legally contact and negotiate a settlement with your collector after they have issued a summons to court. A debt settlement company does not have this legal power. The collectors are very willing to negotiate a settlement even after the summons has been issued; they realize they may get very little if anything regardless, so being contacted by a reputable law firm who is willing to offer them money and settle the debt without wasting anymore time or money with going to court is very beneficial to the collector.
If you get sued and you only have a standard company representing you, you can expect to go to court and try to figure it out yourself. This often results in a judgment for the debtor!
Correct Legal Set Up
Perhaps the biggest advantage the law firm has over a company is how they are set up. The vast majority of debt settlement companies are not legally allowed to work in all the states; many are not even set up correctly to operate in their own state.
The states' attorneys and the FTC (Federal Trade Commission) are cracking down several on these companies and shutting them down as fast as possible. When this happens often times the company does not have the money to payback its clients for the fees they paid to a company that will no longer be in business and can no longer help to settle their debts. Now the debtor will be left holding the bag having paid fees but still be stuck in debt, and this nightmare scenario happens more than you may think. Thus making law firms a much, much safer option!
Another issue that many people have with debt settlement companies is they will not disclose how this process works and will simply sugar coats things and preach about the great benefits but never mention one downside. A law firm legally must disclose everything about how this works before being able to enroll anyone into any structured payment plan. A lot of companies do not have your interest at heart and will say whatever it takes to get you signed up even if they are fully aware that they are setting you up to fail.
Which brings me to my last point; a lot of unscrupulous companies will allow their clients to sign into a program and pay whatever they want and put them into programs that are set up for much longer than they should be. By stretching a debt settlement program out the savings will decrease and the potential for a lawsuit will increase. These companies cannot legally give the client advice or assistance if they get sued; it is considered unlicensed practice of law and this is what I mean by them knowing they will be setting you up to fail. If you can't get this process done within three or four years, on debt under 65K and a max of six years on debt over 65K, you should seriously consider bankruptcy. A law firm will be strait up and tell this to you, where many shady companies will keep trying to sign you up.
I really hope after reading this article you feel enlightened and now have a much better understanding of how debt settlement works and how a law firm can advantage you the most. I know for the most part I have been focusing on the negative aspects of debt settlement, but I feel it is important for people to understand both the good and the bad, allowing them to make an educated wise financial decision on how to get out of debt. But you must realize just how powerful the benefits of this process are! Saving close to half of what is currently owed and becoming debt free in a few years will be so beneficial to your current and future financial well being. Credit card debt has a way of destroying people's finances and their lives and debt settlement is the perfect alternative for those who want to escape debt quickly and avoid the embarrassment of filing for bankruptcy.
If you are curious as to whether using a debt settlement law firm can benefit your financial situation then I invite you to contact us at 800-627-9667 or simply follow the link below fill out an application. Total Debt Relief, inc. welcomes the opportunity to review your situation to see if you qualify debt settlement, if you qualify your application will be processed and forwarded to an attorney for approval.
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