Debt Settlement

Debt settlement means that a debtor and creditor negotiate a settlement that achieves a win-win situation for both parties. For the consumer, he or she pays a percentage of the total amount owed. For the creditor, he receives money on a debt that would otherwise be impossible or nearly impossible to collect on in the future.

Timing of Debt Settlement

Timing of attempting to settle a debt is important—if attempted too early, the consumer can expect little to no results; if attempted too late, the consumer stands the risk of a lawsuit being filed against him, wage garnishment and/or a bank levy or a lien placed on his real property if he owns real-estate.

Debt Settlement Companies

It is not recommend that a consumer use a debt-settlement company to negotiate their debts. First, fees are too high, and settlement can be done for free—by the consumer! Also debt-settlement companies have limited powers:

Illustration: Jane Smith has a good job and approximately $50,000 in credit-card debt. Because she works at a bank and has sufficient funds to pay her creditors, she decides to not file bankruptcy. The current problem is that for a period of six months, she was unemployed and had relied on credit-cards to carry through her unemployment period. Additionally, Jane was unable to keep up with her credit-card payments—resulting in hefty late fees. To make matters worse, Jane’s creditors increased her modest interest rate into the double-digits—making it nearly impossible for Jane to pay down her credit cards.

Acting responsibly (so she thought), Jane called a debt-settlement company that she had seen advised on television. The company promised to settle/negotiate with all her creditors. All Jane had to do was send approximately $700/month to the company. They would then allow these funds to accumulate into a sizable amount—sufficient to allow for future settlement negotiations.

For approximately nine months, Jane paid her $700/month faithfully to the debt-settlement company, amassing an amount of $6,300. One day, to Jane’s surprise, she received a notice of wage garnishment. This was the first time Jane learned of the lawsuit. The notice reflected that her employer was required to garnish her wages until her $10,000 debt with the creditor was paid off in full. After deductions, her take-home pay was $6,300/month.

The next morning, Jane contacted the debt-settlement company to explain the situation with the hope of receiving assistance. Jane also asked the representative at the company to assist with the lawsuit—since she felt it was their fault for not settling the debt sooner. To Jane’s shock and surprise, she was directed to read the fine print of her contract—which reflected that they were not responsible for any lawsuits filed against her. Realizing the company’s limitations, she asked to cancel her contract with the company since they had not negotiated any settlements on her behalf after nine months. Surprise number two came a few weeks later when she received her check for $5,040. Assuming it was a mistake, she called the company to find out what happened to the remaining $1,260. Jane was told that there was a 20% fee charged against all amounts paid by Jane to the company. In other words, twenty-cents on the dollar was going into the pockets of the debt-settlement company!

Moral of the story—either do it yourself or hire an attorney experienced in debt-settlement.

How Can Ms. Garrett Help?

Ms. Garrett can provide coaching in connection with debt settlement. Ms. Garrett can also provide legal services in connection with debt settlement. There are several benefits to using an attorney to negotiate settlement:

  • An attorney adds “muscle” to the settlement process—the creditor knows the consumer is serious about settlement;
  • Ms. Garrett can explain the pros and cons of settlement—enabling the consumer to make an informed decision about debt settlement.
  • Ms. Garrett can explain potential tax liability in connection with settled debt. For many, Ms. Garrett is able to explain IRS exceptions relating to settled debt.

What to expect: During the paid 2-hour consultation, Ms. Garrett will undertake a financial evaluation of the individual’s entire financial history to ascertain the strengths and weakness of their financial situation, as well as to determine the other options available to the consumer besides debt settlement, e.g. judgment-proof letters or bankruptcy.

In follow up to the two-hour initial consultation, Ms. Garrett is available to provide additional coaching in order to assist the client to achieve the best possible settlement; or, at the client’s request, Ms. Garrett is available to directly negotiate settlement with the client’s creditor(s).

If you wish to set up a consultation, Contact Ms. Garrett.

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