THE PROBLEM WITH DEBT SETTLEMENTS
There are actually many problems with debt settlements but let’s discuss a few.
The first problem is finding someone you can trust and count on to represent your best interests, not just their own. Neither law firms nor collection agencies work for either free or cheap.
O.K. so let’s say you found a reasonably priced lawyer who will work for $350.00 an hour or so – they will need to put in several hours meeting with you, assessing your situation, drafting your settlement terms and corresponding with your creditors.
The creditors are not very likely to accept a settlement unless they have very little other recourse. In other words if they still have the ability to sue you, garnishee your wages or lien your property there is little likelihood they will reduce the face value of the debt in favour of a settlement.
So what is the motivation and what are the benefits?
The motivation usually is that the debt is “Statute barred” in other words the Limitations Act prevents the creditor for suing you or resorting to any form of legal action to collect the obligation. Or you are about to walk into a bankruptcy trustee’s and file a bankruptcy and are giving the creditor one last chance.
The benefits of a settlement include: 1) the satisfaction of knowing that you paid something to resolve the outstanding account; 2) the lawyer or collector was paid a pretty good fee;
The downside of debt settlements include: 1) legal or collector fees; 2) require payment of debts that otherwise would not be paid; 3) not all creditors agree to settlements; 4) settled debts continue to impact your credit report for a period of three years after being settled.
By comparison a bankruptcy is most often cheaper, creditors are unable to participate in the proceeding because they are statute barred but they are discharged by it nonetheless.