Debt Settlement

Debt settlement is the process when a person with a lot of debt tries to negotiate a way out with his or her creditors. Basically you are trying to renegotiate previously agreed terms that are on your credit card agreement, car loan contract or even home mortgage. You are in debt up to your ears and trying to settle, hence debt settlement. Debt settlement is often called debt arbitration.

Essentially, debt settlement is a legal process to negotiate a settlement of an existing legal debt. Sometimes you can reduce the debt by up to fifty percent, but twenty five or thirty is not bad either.

There are few legal terms you may encounter while looking for debt settlement help or doing it yourself:

• Accord and Satisfaction which means that you achieve some sort of agreement or accord with your creditor and then, hopefully, will do your outmost best to satisfy all the conditions for this accord. After the accord and satisfaction is made and the money paid, even though it is less than originally owed, the debt is wiped out clean since the new agreement or accord and payment or satisfaction replaces the original agreement.
• Novation which is an agreement between you and creditors to substitute a new contract for the old one. It overwrites the original contract. A novation is often used when the creditor realizes that you can not meet the terms of the original agreement. So in order to get at least some money from you, the original contract needs to be restructured. Creditors go for this because if you are to declare a bankruptcy, they may not get anything at all.
• Offer in Compromise is an agreement between you as a taxpayer and the Internal Revenue Service. IRS has this authority to settle for less than you actually owe. Especially in case when it has doubts that you owe anything at all. Or when you can’t pay the entire amount. So they try to collect at least something.

In certain cases, debt settlement could be the better alternative to bankruptcy, debt consolidation or credit counseling. Bankruptcy stays on your credit history for up to ten years, and has some negative impact on your attempt to get employment or a home loan. Moreover, bankruptcy does not discharge claims for alimony or child support, debts for substantial purchases made shortly before the bankruptcy filing, government insured student loans, and taxes that are less than three years old.

Debt settlement – things to beware

As consumer you have a right to conduct negotiations yourself to obtain a debt settlement. However this is the tricky process and often you need someone else expertise, but… attorneys are expensive and do nothing more than you can do for yourself. Unless you owe a lot, consider self arbitration. Never pay with check from your bank account. Use money orders from the Currency Exchange so that your banking information cannot be traced back. If you are later sued, it is very easy to get an access to your funds.

As part of the settlement, have an agreement from the collector or lender in writing that the debt will be reported to the credit bureau as "Paid as Agreed" or "Satisfied in Full". Otherwise the debt will appear as “o9” or “R9” which is the lowest possible rating and will remain for up to 7 years. Any forgiven amount not discharged in bankruptcy, which exceeds $600 will be taxed as added income.

If you consider hiring someone to do debt settlement for you, check with Better Business Bureau and State Attorney General's Office of Consumer Protection. Discuss and understand an impact the service would have on your credit rating, the fees involved, and the possibility of legal action from the creditors against you even if someone else tries to settle on your behalf.

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