Posts from — February 2009

Debt settlement, also known as debt negotiation or debt reduction, is a relatively new way for dealing with your debt problems. In a debt settlement program, by negotiating with a creditor, a client can reduce their debt by as much as 50 percent and be debt free in as little as 12 to 36 months.

Debt settlement is a great solution for consumers feeling overwhelmed with credit card debt that find themselves either falling behind on their payments or just able to afford the minimums. Considering the savings, in most cases it’s worth doing if you find yourself in any of the aforementioned situations. As with any debt solution, however, there are potential downsides to debt settlement that should always be considered prior to enrollment.

First, debt settlement may have an adverse impact on your credit, particularly while you’re in the program. To put this point in perspective, however, it’s important to remember the following:

1) any third party debt counseling program and even debt consolidation loans from finance companies like Beneficial may affect your credit negatively in the eyes of lenders,

2) the effect on your credit in the long-term is minimal, given the fact you’ll be eliminating all your credit card debt (amount owed is 30 percent of your credit score, compared to credit history, which makes up 35 percent of your score) and 3) if you’re falling behind or about to fall behind anyway, then your credit has been or will be affected negatively anyway.

Realistically, the two main draw backs of debt settlement that are unique to debt settlement are the following: 1) the possibility of legal action being taken by the creditor to collect the full balance and 2) the possibility of creditors harassing you until the debt is settled.

Thankfully, if you’re doing debt settlement in Texas or even debt settlement in Florida, these concerns are very much diminished. Why is Florida debt settlement so preferable compared to a lot of other states? The reason is Texas has highly favorable debtor laws that give consumers a lot of rights and protections when it comes to past due unsecured accounts like medical bills, credit cards, repossessions, and personal loans.

How State Collection Laws Benefit Texas Debt Settlement

Every state has laws that say if a collections agency is collecting a debt, they are legally obligated to stop contacting a consumer if the consumer sends a Cease and Desist letter and/or a Power of Attorney notifying the collection agency that a third party is responsible for handling all communications with the creditor.
Texas law takes it a step farther and not only limits harassment from collection agencies, but also from the original creditor as well. In most states, when a consumer falls behind on their payments and the debt is still being collected by the original creditor (the bank that originally lent you the money or the hospital that serviced you, for example), then the creditor is reserved the right to call the debtor on a daily basis in order to collect whatever is owed, and although debt settlement companies servicing these clients can very easily reduce the calls (changing of your phone number and address and notifying the creditor that you are seeking third party help, for example), no one can ever make the calls completely stop.

This is not the case however for Texas debt settlement clients. In Texas, the same law that deals with what collections agencies can and cannot do when collecting a debt also pertains to the original creditor. What does this mean in practice? It means that a debt settlement company servicing someone from Texas can easily get the calls to not only reduced, but completely eliminated all together (sometimes within days).

State Homestead and Garnishment Laws and How They Benefit Texas Debt Settlement

For Texas debt settlement clients, their wages and home are completely protected, which gives the creditor even more incentive to settle. Given the fact that creditors already have every incentive to settle even with clients who reside in states with less favorable debtor laws, Texas debt settlement clients are in an even stronger negotiating position with their creditors. What does this actually mean? Typically it means even greater protection in the event of a lawsuit and greater savings than what is typical. Let me explain.

Although the vast majority of cases settle, as anyone who has ever read a debt settlement contract will tell you—it’s impossible for a debt settlement company to guarantee that a client won’t be the target of any legal action by their creditors. After all, creditors are always reserved the right to sue debtors to collect a past due account, regardless of whether the consumer is taking any action to resolve the outstanding debt.

In the event a creditor sues a consumer in court and wins a judgment, they’ll usually go about executing the judgment in one of the following ways:

1) Wage garnishment—contacting your employer and asking that they set aside a percentage of your wages every paycheck until the debt is paid back in full. (It’s illegal for an employer to fire you for this unless more than one creditor is garnishing your wages).

2) Lien on your property—obligates you to pay back the creditor with any proceeds from the sale or refinancing of the property. A creditor prefers to put a lien on your home since it usually increases in value over time, which means the proceeds from your home’s sale will be higher, and thus they’re more likely to actually get paid back.

3) Seizing your bank account—contacting your bank, showing the proof of judgment, and asking to withdraw any monies held in deposit under your name.

Fortunately, Texas laws protect debtors from having their wages garnished (unless you authorized in writing to allow your creditor to garnish your wages) and entitle Texas consumers to 100 percent homestead protection in the event of a lien. (Note: this does not apply to tax liens, alimony, or contractor’s liens.)
One downside, however, is that bank accounts are not exempt under state law. That being said, for most consumers who are drowning in credit card debt, there probably will not be much for the creditor to seize anyway, and if so, it’s unlikely that it will constitute enough to decline a settlement offer. On top of that, bank account information can be difficult for creditors to locate, unlike your home, which is public record.

In sum, these are major advantages for Texas debt settlement clients. Keep in mind that the vast majority of cases are settled successfully regardless of the legal advantages of the consumer. When you consider Texas state laws, debt settlement makes even more sense for the credit card companies, debt collection agencies, and most importantly, for the consumer.

Debt Settlement in Texas and Community Property Laws

If you are married, reside in Texas, and are seeking debt settlement services, you should enroll any and all debts that were accumulated during the marriage by both you and your spouse. Just because the debt is owned by only one partner the other partner is not exempt from having to pay for it as well under Texas law. Creditors know this and may use it to their advantage in the collections process.

Some people like to deal with their credit card debt all by themselves. However, some people do use credit card debt settlement agency. There can be various reasons for going for a credit card debt settlement agency. Some people use a credit card debt settlement agency because they are not comfortable in dealing with credit card debt settlement by themselves. Some go for a credit card debt settlement agency because they don’t have the time to do the research and evaluate options for credit card debt settlement. Others just want professional advice and hence they contact credit card debt settlement agency.

Whatever be the reason for employing a credit card debt settlement agency, a good credit card debt settlement agency would surely be of help. However, it’s important that you select a good credit card debt settlement agency. Do not fall for ads of credit card debt settlement agencies that promise to wipe off your debt overnight. No credit card debt settlement agency or anyone else can do that. You should select a credit card debt settlement agency which has verifiable credentials or a credit card debt settlement agency that you know has a good reputation.

If some friend has been through this process previously, they might be able to recommend a credit card debt settlement agency to you. Sometimes you will find ads that promise impossible things and ask you to call a telephone number that’s a premium line. So beware, or else you might end up paying heavy phone bills that would just add to your debt. Some credit card debt settlement agencies might be having a very low fee but no reputation.

These are again the credit card debt settlement agencies that you should avoid. However, once you find a reputable credit card debt settlement agency, do not try to hide debt related information from them, no matter how bad your debt it. That is another reason for looking for a reputable credit card debt settlement agency. If the credit card debt settlement agency is not a reputable one, you would not be able to trust them; and trust is very important here otherwise you will neither be able to tell them the full story and nor follow their advice.

That said, it’s important to note that no credit card debt settlement agency will be able to help you if you are not ready to help yourself. So, follow the advice given by credit card debt settlement agency and practice good spending habits.

Structured Debt Settlement

You may find yourself the recipient of a structured settlement. If this is the case, keep in mind that this financial settlement is different from a typical lump sum payment of many personally injury legal settlements. The structured settlement is paid out over the course of time. Many times, the payout period may extend throughout your personal life with payments taking the form of a lifetime annuity.

This form of settlement has some benefits. The regular payment provided by a structured settlement is somewhat like a paycheck and can provide a regular income for the recipient. This can be helpful in situations where a large payment of cash – many times seen as a windfall could be spent before the recipient of the settlement is able to find employment to provide a regular income.

Because many times a structured settlement has a long payout period – even over the life of the recipient, this can help assure the older person who is receiving the settlement of income through out his or her entire life. This has great benefits when the older person is concerned about their care and financial stability in their later and perhaps declining years.

Structured settlements are helpful in other situations. If the personal settlement involves a severe injury and there are long-term treatment requirements. The structured settlement helps to ensure that future medical costs and family and living expenses will be provided for. These settlements are also used in cases of wrongful death. In this situation, the surviving family can use the structured settlement as a regular income to replace the income of the lost spouse or parent

The structured settlement means that there is an agreement from the defendant to pay a stream of cash to the recipient. Structured settlements are usually administered by third-parties that are experienced in this type of arrangement. Many times the administrator of the settlement will be an insurance company or similar third-party administrator. This allows the recipient of the settlement to be protected from legal complications or financial hardship of the defendant.

Usually the payment schedule of the structured settlement is on a monthly basis. However, as is most cases, this can be an item of negotiation. There are also times when the payment of the structured settlement may include increases in the payment amount or additional payments. This may be done when there are costs that have been identified in advance such as buying high cost items such as vehicles or wheelchairs.

According to recent studies, the average American household has nearly 20 debit and credit cards, with an average of $500 charge on each one; and due to the 2005 Bankruptcy Abuse and Consumer Protection Act it’s making it harder than ever for consumers to have their debts wiped out by the courts. What this means is that more and more consumers are feeling overwhelmed and helpless and are seeking professional assistance to reduce debt and avoid bankruptcy.

Choosing the right debt settlement company for you is an important first step to getting out of debt. Like all industries, the debt settlement industry has fraudulent businesses. While many debt companies may appear to be similar in goals and structure, it is essential to realize that not all are the same and that some are not to fit your needs. There are debt agencies that will charge high fees and promise to lower your debt, without actually producing any results. Learning basic information about a debt company can help you avoid falling victim to a scam. The most import thing is to ask lots of questions.

KEY FACTORS TO DETERMINE IF A DEBT SETTLEMENT COMPANY IS LEGITIMATE:

1. The company should be prepared to meet your needs in an honest and efficient manner.

2. The company should offer free consultation

3. The company should have available a debt counselor or specialist, who is qualified to assess your entire financial situation and recommend the most suitable course of action for your circumstances.

4. The debt counselor or specialist should work with you hand-in-hand in developing a program that will lower your monthly burden to a single, more manageable commitment leaving you debt-free in the shortest time possible.

5. A legitimate company will only charge you according to the original balance, not the balance after all of the fees and charges.

6. Please be very cautious if a company claims that as a part of their services, they guarantee to stop all creditor phone calls or guarantee that your credit will not be altered.

7. The company should demonstrate the required business practices and standards required by TASC. TASC- Trade Association of Settlement Companies. TASC goals are to promote good practice in the debt settlement industry and protect the interests of consumers. TASC encourages debt settlement companies to provide services of the highest standards to ensure the public and the credit industry’s confidence.

8. In order to achieve successful negotiations, the company should have skilled debt negotiators and settlement professionals, who are current with the laws pertaining to debt, credit and collection and represent their debtor client’s best interest during debt negotiations with creditors and collectors.

However, you should shop around to find a debt settlement company that is honest with proven results, and one that is the best fit for you. Make sure that the company offers the services that you need at terms that are acceptable to you.