FAQs on Debt Settlement

Frequently Asked Questions - about Debt Settlement Programs:

We believe in full and honest disclosure regarding all aspects of our Debt Settlement / unsecured Debt Relief Program program. Here is the following responses to Frequently Asked Questions about Debt Settlement / Unsecured Debt Relief Program and your ability to pay of credit card debt early provided to better assist prospective clients in understanding our service.

Program:

The total program cost is specified in your contract and is based on the amount of debt enrolled into the program. Our contracts are easy to read, outline exactly what we will do for you, and disclose all fees that you will be responsible for once you qualify and enroll in our program.

We offer you real time access to your account. We have an online “client center” so current clients can view their account information at any time and/or be sent monthly statements.

We operate out of a brick and mortar office and our industry knowledgeable staff is available to assist you.

Our clients are likely to experience aggressive collection companies using threatening collections tactics. We help our clients deal with these collection companies actions by communicating with the collection company and advising them of your participation in our program. You are also provided a document which advises you of your legal rights in respect to collection/harassing contacts and phone calls.

We negotiate the best possible settlement for you depending on your individual circumstance, when negotiating on your behalf, we not only negotiate for the most favorable financial terms but will also provide you with the settlement documents for each and every settlement obtained. Our relationship goes beyond just Debt Settlement / Unsecured Debt Relief Program, our relationships last a lifetime. Debt Negotiation is not just about addressing your current debts in the program and becoming financially independent of your credit cards. It is about learning proper financial management so that each consumer is not faced with the same financial situation in the future.

Q: How does Debt Settlement / Unsecured Debt Relief Program work?

Debt Settlement / unsecured Debt Relief Program works by negotiating the balance owed (principal) on your unsecured personal debt accounts through the time-honored process of creditor negotiation. This is different from simply reducing the interest rate as with Debt Consolidation and Credit Counseling, which do not affect the total debt balance. By negotiating the balance itself, Debt Settlement / Unsecured Debt Relief Program provides a much faster means of satisfying your debt. Most creditors are willing to accept a settlement below the balance owed in order to close out an account rather than lose the entire amount in a bankruptcy proceeding. From a business perspective, it is a matter of the creditor receiving something rather than nothing, as would be the case in most bankruptcies. Of course, different creditors have different policies, but as a rule, discounts are routine in the industry. As a consequence of this approach, money that was previously spent on endless minimum payments (most of which went toward interest charges) goes toward the negotiated debt balance. That's why Debt Settlement / Unsecured Debt Relief Program through negotiation is the fastest debt satisfaction method short of Chapter 7 bankruptcy.

Q: Will this Debt Settlement / Unsecured Debt Relief Program strategy work for me?

While the Debt Settlement / unsecured Debt Relief Program approach is not suitable for everyone, its flexible nature makes it applicable to a wide range of financial circumstances. Here are a few guidelines to help you determine whether or not Debt Settlement / Unsecured Debt Relief Program is something you should consider:

1. Do you have a legitimate financial hardship condition?
Most debt problems are caused by loss of income, medical issues, or divorce/separation. These are legitimate financial hardships that can happen to anyone through no fault of their own, and any one of these situations can wreak havoc on a household budget. The important point here is that the Debt Settlement / unsecured Debt Relief Program system is not a "free lunch" for people who don't feel like paying their bills. If you are over your head due to a hardship circumstance, and you'd prefer to work things out with your creditors rather than declare bankruptcy, then Debt Settlement / unsecured Debt Relief Program can provide an honest and ethical debt relief alternative.

2. Are you committed to satisfying your debt?
Debt Settlement / unsecured Debt Relief Program is best viewed as a better option, one that allows you to keep control over the process and maintain privacy while working through your financial difficulties. As with most things in life, success is determined by your level of commitment to staying the course, even when the road gets a little bumpy. If you are likely to give up at the first rough spot, then Debt Settlement / unsecured Debt Relief Program is probably not the best choice for you. But if you are determined to satisfy your debt, Debt Settlement / unsecured Debt Relief Program will likely be the most attractive debt solution for you.

3. Do you owe more than $10,000 in unsecured debt?
We are the first to admit that Debt Settlement / unsecured Debt Relief Program is strong medicine, and it should be reserved for serious debt problems. While everyone's budget is different, most people can work their way out of smaller debt obligations. If you only owe $5,000, for example, unless you are really in dire straits you can probably deal with that obligation the old-fashioned way - by paying off the debt in full, over time. In other words, smaller debt loads are more of a budgeting problem than a serious financial hardship. At Atkins & Associates Debt Settlement / unsecured Debt Relief Program, we use the benchmark of $10,000 for evaluating whether or not a prospective client qualifies for our program. (Note: Exceptions are sometimes made based on hardship circumstances, so the $10,000 figure should be used as a rule of thumb or guideline. If you aren't sure whether you meet the requirement, please call one of our knowledgeable representatives at 540-286-2323 for a free, no-obligation consultation.)

Q: What happens to my credit / FICO score during the process?

The effect of our Debt Settlement / unsecured Debt Relief Program program on your credit score will partly depend on your current credit status before starting the program. Few people with debt troubles have perfect credit to begin with. In general, your credit score (usually called the FICO score) may decline during the program, and will begin to improve again after you have become debt-free. As you get each creditor paid off, your Debt-To-Income Ratio will improve.

Q: What are the tax consequences?

Financial institutions are required to report cancelled debts over $600 (the portion forgiven during the settlement transactions) to the IRS, and the debtor is required to report that as income on their tax return. However, the IRS permits you to offset any "income" from cancelled debts up to the amount you were "insolvent" at the time the debts were cancelled. You are "insolvent" if you owe more than you own, or in other words, if you have a negative net worth. If you're deep in debt, it's not likely that you have a positive net worth, so it's rare that a client would have to pay taxes on the forgiven debt balance. The exception might be an individual with a high level of home equity, which might make the overall net worth positive and thereby eliminate the insolvency exclusion. However, this is the exception rather than the rule. Ultimately, to get an understanding of how the program will impact you personally, we recommend speaking with a professional tax advisor.

Q: What about lawsuits?

While creditors have the legal right to bring a lawsuit for non-payment of a debt obligation, such lawsuits are far less common than most people think. It costs money to sue someone, and a legal judgment is simply a piece of paper unless there is a way to collect money against it. The threat of litigation, on the other hand, is all too common, even though debt collectors are not supposed to threaten legal action unless they are specifically authorized to bring suit. In general, lawsuits can normally be avoided, provided you are willing to work out suitable arrangements with your creditors through the negotiation process. Contrary to popular belief, most creditors would rather work things out amicably in a negotiated settlement than spend more money taking a customer to court (with no guarantee of being able to collect on a judgment). That's why thousands of litigation-free settlements are transacted every month all across the country. Creditors won't admit it publicly, but our method works much better for them than forcing people into bankruptcy through overly-aggressive collection techniques.

Q: Can my wages be garnished?

If you listen to some debt collectors, you might be fooled into thinking that they will seize your very next pay check unless you make a payment right then and there. The threat of losing part of one's wages to a garnishment action is truly frightening to someone already struggling financially. But this is mainly an intimidation tactic used by collectors to scare people into committing to a payment schedule whether or not they have the funds available. Actual garnishment actions are relatively rare, and do not happen without advance warning. First, a creditor must bring a lawsuit, obtain a judgment, and then take an additional step to obtain authorization for the garnishment. Plus only one creditor can garnish your wages at a time. No one can take your pay check without court approval, and you must be given notice of such court action through formal documentation. So don't be fooled by one of the oldest collection tricks in the book.

Q: What are the differences between Debt Settlement / Unsecured Debt Relief Program compared against Credit Counselling?

The most important difference between these two programs is that with credit counselling, you pay back all of the debt balances, plus interest and fees, whereas with Debt Settlement / Unsecured Debt Relief Program, you pay back only a portion of your debt load. That's why Debt Settlement / Unsecured Debt Relief Program is a much faster path to debt freedom (2-3 years) than Credit Counselling (5-9 years). This means a lot less money out of your pocket is used through the Debt Settlement / Unsecured Debt Relief Program approach. Another key difference is that your Debt Settlement / Unsecured Debt Relief Program firm works solely for you, the consumer, and receives no compensation directly from the creditors. In other words, your Debt Settlement / Unsecured Debt Relief Program firm is truly on your side. With a credit counselling agency, there is a dual relationship, where part of their income comes from the client and the majority of it comes from kickbacks paid by the creditors. This creates a built-in conflict of interest and creates doubt as to whose side the agency is really on. Also, Debt Settlement / Unsecured Debt Relief Program provides much more flexibility than credit counselling in both the monthly budget level and the types of accounts that may be enrolled. For example, if you have a really tough month and need to skip a payment, that situation can be absorbed by a Debt Settlement / Unsecured Debt Relief Program, whereas it will cause serious problems with a credit counselling program. Further, if your accounts have "charged off" and gone into the third-party collections cycle, you can still enroll those obligations in a Debt Settlement / Unsecured Debt Relief Program, where they will be rejected by a credit counselling agency.

Q: What kind of debt can be negotiated?

As a general rule, any type of unsecured debt can be successfully negotiated. An unsecured debt is one that is not tied to a specific material item that could be repossessed by the creditor. So an auto loan, for example, could not be included because the creditor could legally repossess the vehicle. Credit card debt, medical bills in collections, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts are all types of accounts that can be included in our program. The main exception here are student loans, which in most cases are government backed loans that cannot even be discharged in a bankruptcy proceeding. (Private student loans that are not sponsored by the government can be included.)

Q: What if a creditor won't negotiate?

In the course of business, we have established contacts with the major banks, collection agencies, and collection attorneys. Debt Settlement is recognized as a viable solution by collection industry professionals, and at Square One Debt Settlement we pride ourselves on the professional reputation we have established by dealing fairly with creditors. In the rare instance where a creditor balks at accepting a reasonable settlement at the time it is proposed, it is often a matter of simply waiting for a different phase of the collection process. Some creditors are more inclined to play "hardball" than others, but virtually all of the major institutions eventually sell their accounts to collection agencies in order to get what they can for the account. Since the collections agencies acquire these accounts for pennies on the dollar, they are more inclined to accept a reasonable settlement offer, which still represents a profit on their purchase.

Q: Are there debts that can't be entered into the program?

Secured debts cannot be entered into our Debt Settlement / Unsecured Debt Relief Program. This includes home loans, second or third mortgages, equity lines of credit, auto loans, and financing contracts tied to a specific piece of property that may be legally repossessed by the creditor. Federal student loans, although unsecured, must also be excluded from the program. In addition, Federal and State taxes cannot be included.

Q: Can I do this myself?

Yes, it is certainly possible for a consumer to negotiate his or her own debts. However, there are several important factors that should be taken into consideration before making such a decision. First, do you have the time? For individuals with serious debt problems, the complexities of the negotiation process can be very time consuming. Many people simply do not have the time to add this labor-intensive task on of an already busy work schedule. Second, it requires a certain kind of psychological toughness to haggle with creditors. The average consumer is hampered by the embarrassment and shame they feel over having gotten into trouble. With all the tricks, traps, and pressure tactics used by creditors, most people will find themselves better off with professional assistance.

Q: Don't I have to pay taxes on the money I save?

Yes you may have to pay income taxes on the amount you save, but this amount is usually still much less than the amount you would have paid in interest.