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Considering Debt Settlement? Get Informed About Being Sued and How to Deal With It.

The following guest post was contributed by Michael Bovee of Consumer Recovery Network.

If you would like to contribute a guest post, click here.

There are limited options available to people struggling to keep payments current with their unsecured debt. The options you can look to are generally limited to Credit Counseling Associations (CCA) who can set you up in a Debt Management Plan (DMP), filing bankruptcy, or attempt to settle some or all of the accounts for less than the full balance due.

There are pro’s and con’s to each of these three options. Once you’ve researched each option and clearly understand how each will apply to your own set of circumstances you will better be able to make an informed decision about what steps to take to tackle the problem.

I would strongly suggest locating reputable professionals providing each of the three options outlined above as part of your evaluation. While you may hear generalities about each option from individual sources, nothing can take the place of speaking to an actual service provider whose daily work experience makes them an expert in providing their specific service and gives them the ability to provide needed details.

In my experience, most of your determination of which option will likely prove suitable to you will be based on math. For example, boring old arithmetic typically points to your financial capabilities to pay 2 to 2.5 percent of your credit card balances monthly for an average of say 5 years in a DMP. If your monthly cash flow cannot support this type of monthly payment with confidence, most people can then eliminate a DMP as a feasible and workable solution. Consulting with a bankruptcy attorney will help you determine if your income is low enough in order for you to qualify to discharge your unsecured debts in chapter 7 bankruptcy.

There are several reasons to think beyond the math alone when considering bankruptcy and debt settlement as options. I will focus on one such reason:

Creditors do sue on unpaid debts in order to collect.

One of the biggest drawbacks to debt settlement is one of the biggest benefits to bankruptcy.

Bankruptcy will prevent lawsuits from being filed or can stop an existing lawsuit from progressing any further. People who have a shot at avoiding bankruptcy may see debt settlement as an attractive last effort to keep out of the bankruptcy court, only to find them later resorting to filing for legal protection from creditors if their debt settlement approach leads to being sued on one or more accounts.

The debt settlement industry in my opinion too often downplays the risk of being sued when involved in a settlement plan. Many companies’ business practices will in fact be the cause of lawsuits that are filed earlier than normal by certain creditors who take a hard line approach when receiving communications from 3rd party companies identifying themselves as your spokesperson for anything related to the debt. Limited power of attorney sent in by a settlement firm to some of the largest credit card issuers for example, often results in early placement with an attorney for more aggressive collection actions.

So, lawsuits are a concern. That established, how much of a concern and should this concern reach to the level of now abandoning the idea of attempting to settle the debts as a means to avoid filing bankruptcy?

At my company, we use a narrower timeline for underwriting whether we will work with a consumer who can or should use balance negotiations with creditors. We actually spell out known timelines for collection and balance concessions prior to charge off and what happens after charge off during our initial consultations with consumers. This collection and settlement timeline provides any of our prospective members with a clear understanding of why they should be motivated to get any all settlements done and out of the way as soon as can be realized. This will often mean they would not qualify for debt settlement based on income alone, but they at least will know the option is not right for them, or will see the wisdom in accessing funds that are not part of monthly income in order to get the settlements funded quickly and mitigate the risks of being sued.

Few settlement service providers are, or would be willing, to limit their enrollment to those who can complete settlements in an 18 months window like we do. Fewer still will reveal the fact that the risks of being sued typically begin directly after charge off and that the risk increases thereafter. I will however encourage settlement professionals to begin to test enrollment suitability using the following measure:

Ask the client if they have a funding resource they can tap in an emergency. If you are not going to outline the emergency as one where there account is placed with an in state attorney and should therefore be place on the priority list for settlement prior to being sued, than perhaps consider phrasing it as:

“Let’s say you just funded a settlement offer and have to wait several months to accumulate funds in order to settle the next account on the list, but within weeks there is an offer on the table to settle another account that is more than fair. If you knew that account would cycle out to another collector who may not make as good an offer and in fact this account may never be able to be settled for this low again, can you access funds to take advantage of the offer?”

If the answer to this question is yes, you now know that you are working with a motivated individual who will be better positioned to react to escalated collection actions, or who can indeed take advantage of fire sale offers that do occur. If the answer is no, you are potentially working with someone who is not well suited to settlement in an attempt to avoid bankruptcy.

I recently answered a debt settlement/risk of lawsuit question directed at my company’s specific data that fits perfectly for this article:

What percentage of clients accounts experience any legal activity for a debt that was included in the program? When defining legal activity as being sued by a creditor or debt buyer in their pursuit of collecting an unpaid debt: Less than 2%

Very Serious Warning: Less than 2% is a low number, but don’t read too much into it! Granted, the comparative number of lawsuits to collect a debt verses the record high number of defaults in recent years is low, but thousands of lawsuits to collect unpaid debts are filed across the country every month. Lawsuits can and do happen.

This risk, in my opinion and experience, has been and will continue to be why many people who are ill suited to attempt it, should avoid the debt settlement option. This is one of the primary reasons CRN will not underwrite a new member whose financial situation and access to funding sources mean they cannot complete all settlements inside of 18 months (24 months in certain circumstances).

The risk that you can be sued is a required disclosure. Marketers and promoters of debt settlement tend to down play the risk of being sued by creditors that you are not paying while holding out to settle with them when you are financially able. Many have developed talking points to help you manage the fear of being sued. Warnings and disclosures about lawsuits, even the low percentage risk of it happening, will generally mean nothing to you if you are sued. Being sued is an emotional event for most people. If you experience being served a summons/complaint, nothing anyone will have said will matter. As far as you’re concerned at that point; everyone gets sued because you just did.

You need to carefully assess this risk. You may have creditors who are more prone to sue. You may live in a state where more suits are filed per capita.

Sometimes your risk profile can be identified in advance in order to mitigate the odds one of your accounts is targeted for litigation.

Be sure you speak with a debt settlement service provider who is willing to talk about these risks and how you will be able to overcome them. The key to either limiting or eliminating your risk of being sued is by prioritizing creditors and/or by having access to emergency funds in order to settle if one of your accounts is placed with a collection attorney licensed in your state earlier than normal.

Now that you know you can be sued for unpaid debt before you are able to settle, you should know that lawsuits are routinely settled out of court. The savings is typically not as good as would have been available if that account had not reached the litigation stage of collection.

If you are thinking about debt settlement, you need to know that lawsuits happen. If one does occur, and it is the last account or second to last account remaining to be settled, you will likely still be a success in your overall efforts to get out of debt. If you are sued early on, or multiple times, you may find yourself seeking the courts protection through bankruptcy after all.

Given federal laws that went into effect in October of 2010, any reputable debt settlement company operating today does not charge in advance for their direct debt settlement service. People are now better protected from past industry issues where they paid a company large fees in advance only to have received no value and where many wound up being sued later on with no ability to react with adequate financial resources because upfront fees were more important to the company than the customers success.

If you have been approached by a company exploiting loopholes in laws passed designed to protect you from the problematic issues associated with charging money upfront for something that has not worked yet (settlements accomplished) you need to know that:

  1. You can settle debts on your own without the need for third party interference.
  2. There are reputable companies offering debt settlement services who do not charge fees in advance, like members of the AACC.
  3. Those circumventing laws put in place to protect you by charging advance fees are not concerned about you as much as they are concerned about themselves and in all likelihood could care less how the program turns out for you (as evidenced by their charging upfront settlement fees – a practice now well recognized to be a detriment to your success).

If you are reading this and have already been sued or have had a judgment entered against you, please review: Can Judgment Debt Be Settled Like Other Debts.

Considering Debt Settlement? Get Informed About Being Sued and How to Deal With It. by

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About Michael Bovee

Michael Bovee
  • Michael

    Great comment Andy.

    There are perhaps a couple debt settlement service providers who have the infrastructure and funding to be able to adapt quickly to a hybrid model of debt relief.

    There are far more CCA’s that would be able to adapt more readily. The CCA’s have so far been unwilling or unable to walk away from fair share and grants they receive from creditors that creates the inherent conflict of interest that has always been an underlying concern.

    Perhaps IRS reg Q that limits creditor funding to 50% combined with the dramatic decrease in fair share and grant value will coax and or force some of the DMP providers to look to creative and innovative designs for the future of debt relief.

    The 60/60 efforts have gotten little traction and are problematic from the consumer side anyway. I have never published anything about the issues from the consumer and broader economic side relating to the 60/60-esque plans because they never materialized in any meaningful way when introduced in 2006, or since. I have an article planned for this site on this topic soon.

    Debt relief, or at least the debt settlement side of the fence, will look very different 18 months from now in my opinion.

  • Andy Faria

    I’ve developed a belief that if the debt settlement industry doesn’t start to move in the direction of hybrid programs, it will disappear almost completely. We’re already seeing it and the writing is on the wall. Of course there will always be some demand for it, but there’s just not enough people that are truly qualified to fall behind on all accounts anymore. And it’s the same with debt management, an all or nothing approach automatically disqualifies most people. A hybrid program simply amounts to a better product.

    Yes, like Michael says, the games that creditors play will be an obstacle, but it can be overcome. After all, what is the difference between a hybrid situation and the last couple accounts on a ‘full’ debt settlement service? Not much, we all know that the creditors break balls on those last few, but they still settle.

    A hybrid program can create an entirely different dynamic between the providers and the creditors, and could amount to better dmp offers up front and more forgiveness on the dmp plans in progress. Especially if the providers reject any fair share, things could change.

    I think the most interesting aspect to a hybrid program is the ability to incorporate a debt rollup strategy into the second half of the program. Once a portion of the accounts have been settled, there will be extra cash built into their monthly payments . This surplus can now be piled on top of the dmp payments strategically between accounts. As accounts drop off, the surplus grows and is redirected to the next account, until the debt is gone and everyone wins.

    If a hybrid debt relief program is created, what is the need for full debt settlement or management providers that only offer one or the other? None, the hybrid covers both ends of the spectrum and everything between.

    The question I’m left with is, Who is better suited to create a hybrid debt relief program? An existing debt settlement provider?, or an existing debt management provider? It’s hard to say but if its going to be a settlement provider, they would probably need to have an increased focus on compliance, licensing, bonding, and overall standards. If it’s going to be an existing dmp provider they would need to tell the creditors to go screw on the fair share, in order to do it right. Based on the debt relief industry that I have come to know, I’m not sure if anyone has the guts to do either.

  • Michael

    Jason, thank you for responding to some of my questions.

    Do you work in the debt relief space in any capacity? Your comments suggest you do. In what way? When you talk about spreading payments to all creditors equally based on ability to pay being fair, is that what you do?

    If you work in debt settlement your comment would suggest that you try, in observance of all fairness, to get the maximum and equal amount of money to creditors on behalf of your clients.

    This would be counter-intuitive.

    I have already agreed in part that navigating hybrid and flexible plans to address problem debt has obstacles. The only way you can do so successfully is to have an extremely deep understanding of all the varied aspects of collection stages and individual creditor behavior. I surmise from your comments that you don’t think a plan with built in agility to adjust is feasible.

    If you do operate in the space and know your work flow and its implementation in the way that you are committed to it, I do not endeavor to change your mind, or your focus. The fact that my work flow and the methods I advocate be understood and implemented where applicable and prudent are different than yours (and are in fact different than what is done throughout most of the industry) is no secret at this point.

    Jason, if a consumer came to you with 5 accounts they were unable to keep current, where 3 of the balances were in excess of 10k and where 2 of the balances were less than 1k, what would be the recommendations you would make to the consumer about settlement?

    Credit reporting and the skip tracing you refer to in your post are part of the equation, which I had pointed out above in response to Andy. You appear to weigh those issues, perhaps too much in some instances and too little in others.

    I would tend to agree with you that many in the industry are limited in their knowledge and understanding of the collection process from day one of delinquency until an account is successfully dealt with. I am going to be making a concerted effort to inform and educate all readers of this site through additional article submissions and comment participation by using my experience and observations. I hope others will contribute, or continue to contribute in the comments.

    I emphatically agree with you that debt settlement is primarily an alternative to chapter 13 and in some limited instances better than opting for chapter 7 when there are knock on effects that should be avoided if possible. The pool of suitable people to attempt settlement is much smaller than many market participants assume. This fact, as can be seen in the article above, and my follow up comments, find us in complete agreement.

    Your point about those who drop a settlement plan due to being sued who then file BK being high is likely a very accurate observation. It in fact helps to make my point about quicker program lengths being the only prudent method for underwriting and accepting people. Your point is so clearly in support of what I have presented that I am not sure why there would be any need to debate it further.

    Thank you for your brief definition of a hardship. Unfortunately, in order for me to comment in the way I had hoped, I would again have to assume more than I am comfortable about your reply. It would now be helpful if you could define “reasonably” as contained in your comment “someone who cannot reasonably afford to pay back their debts in full”.

    Your comment about settlement being done by an attorney who also provides BK services as part of their practice would theoretically be better. It is not the reality in practice today. Not with creditors, collection attorneys and agencies, percentage of savings when inclusive of fees (or likely without fees).

    Articles I am preparing for the coming week will speak more clearly to some of what has developed in the comments section of this one.

  • Jason Taylor

    I should of provided more clarification. I’ll go down the list.

    No Angelo I am not a BK attorney or Hedge fund guy- don’t get all jumpy as you are discrediting yourself by those statements.

    I do not think it is ethical the way many creditors are increasing balances so quickly when in default and it should be illegal in my opinion for a balance to double in 12 months. But still, why should someone settle with one creditor and pay others in full? If you borrowed money from two private individuals you knew and paid one back in full and one back half, how is that right? With a BK, the courts will typically disburse available funds EVENLY to the creditors- that’s fair. This is just my personal opinion but to each there own.

    The big concern is that creditors and collectors monitor credit reports, especially on individuals they are trying to collect on so they know (most of the time) if they are paying back OTHER creditors in full. This could also lead a particular creditor the settlement company is trying to settle with to believe the customer really has the resources to actually pay back their full debt also, so it is even more reason to sue them. This is why all unsecured debt should be enrolled in settlement. What if you were a debt collector looking at settling a debt that the debtor has not made a payment on in 12 months and you saw that with 3 other creditors (lets just say for the sake of argument that the account balances are about the same and were) and the client was making payments to them every month on time or paying them back in full in a DMP? Any debt collectors on this site want to chime in what course of action they would take?

    Other factors a collector will look at on the credit report is how much their secured debt is and if they are being paid on time. If someone owes 30,000 in credit card debt, but the creditor can see the client can afford to keep up with two $900 car payments and a $2,500 house payment, despite whatever income the client put on their original application the creditor might assume there is enough income to pay back the debt in full and their chance of full recovery by filing a lawsuit may be higher. Some people enroll in debt settlement because they are willing to let their credit go bad or risk getting sued before giving up other luxuries to pay their debts off in full- and yes that includes cars and houses that are well above and beyond basic living essentials.

    On the flip side, when a creditor sees that someone is delinquent on all of their unsecured debt (its actually better for negotiations if they happened to be behind on secured debt as well) then the creditor or collector knows their chance of getting paid in full is pretty slim.

    I am surprised how many people in the debt settlement industry are CLUELESS what really happens on the other side (collections).

    Rather than writing a book about all the hardship scenarios, I define hardship as someone who cannot reasonably afford to pay back their debts in full.

    I describe debt settlement as a possible bankruptcy alternative, more so an alternative to a chapter 13. Just about any client who has ever enrolled in debt settlement could of filed a chapter 13 if they wanted to, but likely they didn’t want to!. Obviously the court would determine how much they would actually pay back, and it could even be 100% if they had enough resources or assets.

    Sometimes creditors sue people just because they are generally aggressive, miscalculated the clients resources or just some bs policy like Citi has every few years rather than being reasonable when someone has a justifiable hardship, in this case I think when creditors do get a chapter 7 thrown at them its shows that many people trying to settle are truly in a hardship, including possibly a candidate for BK, but wanted to try to resolve their debt without BK. Clearly if someone can truly qualify for a 7, or even a 13 with paying back less than they owe, they are in a hardship. I bet if we were able to see the stats of debt settlement dropouts over the years, the number of people who would of stuck to the program had they not got sued and who ended up filing a 7, or a 13 because they got sued are pretty darn high.

    Clients who have an attorney to settle their debt (who hopefully doesn’t charge advance fees) and who also regularly practices BK have an upper hand in the game. Even if the attorney has no intention of filing a BK for their client, does the creditor want to take the risk of suing that client when there is a higher probability that the client could filing BK? Sure the creditor could call the bluff if there is good reason, but its a strong upper hand to even push for a lower settlement.

  • Michael

    Jason, I agree that creditors and collectors are not stupid. I do mention in one of my above comments that there are real challenges to be concerned about and to overcome when objections are raised or that can be anticipated and planned around. To say individualized strategies that incorporate multiple methods are out of the question is not consistent with the reality that we have and continue to both advocate and do these things. We have for years now.

    If agility and customization is out of the question in your own work flow and experience, that is for you to say.

    Could you please expand on your comment “I don’t like it from an ethical manner either”? I would only be able to make assumptions about your comment based on the little context you provided and would really like to explore the objection you raise.

    Your concern about aggressive creditors getting a better recovery and the danger of non aggressive creditors following the aggressive example is a non starter.

    Issuers and the collection pipeline that has been in use for many years is by and large a function of recovery goals and the costs associated. Creditors adjust policies frequently, but the infrastructure and the math are generally a constant.

    A good example of this would be Citi. They were one of the toughest issuers to work with in 2002. Not so tough in 2005. Tough again in 2007. Not so tough since 2008. I will be returning a members call shortly who received an auto offer in the mail from citibank for 20 cents on the dollar pre charge off.

    Settlement is not an all or nothing game. Far from it. Why do you consider it to be so?

    What do you define as a hardship?

    You mention creditors kicking people when they are down and that they deserve to get kicked back and that creditors deserve to get nothing. How do those statements square with your having raised an ethics concern in the same comment?

    Similar to how I read Roberts question, are your objections to the viability of a multi-prong approach to resolving debt simply because you do not have the frame of reference from which to draw?

  • Angelo

    Never mind Jason, it all makes sense now. I didn’t realize you were the “hedge fund will buy your debt” guy.

    http://financeneeds.com
    http://financeneeds.com/debt-s

    How’s that working out for you?

  • Angelo

    Jason, are you a BK attorney? You are under the impression that everyone qualifies for a chapter 7 and that’s not always the case nor is it always the best solution for every consumer.

    When you say it’s unethical, are you saying it’s unfair to creditors? Im not sure what that comment is supposed to mean? Is it ethical for CapOne to continue to charge fees/penalties after charge off? How is that even legal let alone ethical?

    Can you explain your logic that settlement is an all or nothing game? Because I think putting CapOne accounts in a DMP knowing the balance will double and then followed by a lawsuit is a great strategy that benefits the client tremendously.

  • Jason Taylor

    paying some creditors in full or putting some in a DMP and settling others it out of the question. Creditors and debt collectors are not stupid, if they see other creditors are being paid in full and on time, they will not want to settle for a lower amount. I don’t like it from an ethical manner either plus, if creditors realize they get paid in full when they are aggressive, what are the ones that are not aggressive going to do?

    Settlement is an all or nothing game. When someone is truly an a hardship, and a creditor kicks them when they know they are down (sues them) the creditor deserves to get kicked back, and sometimes they get what they deserve- nothing from a Chapter 7.

  • Jason Taylor

    paying some creditors in full or putting some in a DMP and settling others it out of the question. Creditors and debt collectors are not stupid, if they see other creditors are being paid in full and on time, they will not want to settle for a lower amount. I don’t like it from an ethical manner either plus, if creditors realize they get paid in full when they are aggressive, what are the ones that are not aggressive going to do?

    Settlement is an all or nothing game. When someone is truly an a hardship, and a creditor kicks them when they know they are down (sues them) the creditor deserves to get kicked back, and sometimes they get what they deserve- nothing from a Chapter 7.

    • Angelo

      Jason, are you a BK attorney? You are under the impression that everyone qualifies for a chapter 7 and that’s not always the case nor is it always the best solution for every consumer.

      When you say it’s unethical, are you saying it’s unfair to creditors? Im not sure what that comment is supposed to mean? Is it ethical for CapOne to continue to charge fees/penalties after charge off? How is that even legal let alone ethical?

      Can you explain your logic that settlement is an all or nothing game? Because I think putting CapOne accounts in a DMP knowing the balance will double and then followed by a lawsuit is a great strategy that benefits the client tremendously.

    • Michael

      Jason, I agree that creditors and collectors are not stupid. I do mention in one of my above comments that there are real challenges to be concerned about and to overcome when objections are raised or that can be anticipated and planned around. To say individualized strategies that incorporate multiple methods are out of the question is not consistent with the reality that we have and continue to both advocate and do these things. We have for years now.

      If agility and customization is out of the question in your own work flow and experience, that is for you to say.

      Could you please expand on your comment “I don’t like it from an ethical manner either”? I would only be able to make assumptions about your comment based on the little context you provided and would really like to explore the objection you raise.

      Your concern about aggressive creditors getting a better recovery and the danger of non aggressive creditors following the aggressive example is a non starter.

      Issuers and the collection pipeline that has been in use for many years is by and large a function of recovery goals and the costs associated. Creditors adjust policies frequently, but the infrastructure and the math are generally a constant.

      A good example of this would be Citi. They were one of the toughest issuers to work with in 2002. Not so tough in 2005. Tough again in 2007. Not so tough since 2008. I will be returning a members call shortly who received an auto offer in the mail from citibank for 20 cents on the dollar pre charge off.

      Settlement is not an all or nothing game. Far from it. Why do you consider it to be so?

      What do you define as a hardship?

      You mention creditors kicking people when they are down and that they deserve to get kicked back and that creditors deserve to get nothing. How do those statements square with your having raised an ethics concern in the same comment?

      Similar to how I read Roberts question, are your objections to the viability of a multi-prong approach to resolving debt simply because you do not have the frame of reference from which to draw?

      • Jason Taylor

        I should of provided more clarification. I’ll go down the list.

        No Angelo I am not a BK attorney or Hedge fund guy- don’t get all jumpy as you are discrediting yourself by those statements.

        I do not think it is ethical the way many creditors are increasing balances so quickly when in default and it should be illegal in my opinion for a balance to double in 12 months. But still, why should someone settle with one creditor and pay others in full? If you borrowed money from two private individuals you knew and paid one back in full and one back half, how is that right? With a BK, the courts will typically disburse available funds EVENLY to the creditors- that’s fair. This is just my personal opinion but to each there own.

        The big concern is that creditors and collectors monitor credit reports, especially on individuals they are trying to collect on so they know (most of the time) if they are paying back OTHER creditors in full. This could also lead a particular creditor the settlement company is trying to settle with to believe the customer really has the resources to actually pay back their full debt also, so it is even more reason to sue them. This is why all unsecured debt should be enrolled in settlement. What if you were a debt collector looking at settling a debt that the debtor has not made a payment on in 12 months and you saw that with 3 other creditors (lets just say for the sake of argument that the account balances are about the same and were) and the client was making payments to them every month on time or paying them back in full in a DMP? Any debt collectors on this site want to chime in what course of action they would take?

        Other factors a collector will look at on the credit report is how much their secured debt is and if they are being paid on time. If someone owes 30,000 in credit card debt, but the creditor can see the client can afford to keep up with two $900 car payments and a $2,500 house payment, despite whatever income the client put on their original application the creditor might assume there is enough income to pay back the debt in full and their chance of full recovery by filing a lawsuit may be higher. Some people enroll in debt settlement because they are willing to let their credit go bad or risk getting sued before giving up other luxuries to pay their debts off in full- and yes that includes cars and houses that are well above and beyond basic living essentials.

        On the flip side, when a creditor sees that someone is delinquent on all of their unsecured debt (its actually better for negotiations if they happened to be behind on secured debt as well) then the creditor or collector knows their chance of getting paid in full is pretty slim.

        I am surprised how many people in the debt settlement industry are CLUELESS what really happens on the other side (collections).

        Rather than writing a book about all the hardship scenarios, I define hardship as someone who cannot reasonably afford to pay back their debts in full.

        I describe debt settlement as a possible bankruptcy alternative, more so an alternative to a chapter 13. Just about any client who has ever enrolled in debt settlement could of filed a chapter 13 if they wanted to, but likely they didn’t want to!. Obviously the court would determine how much they would actually pay back, and it could even be 100% if they had enough resources or assets.

        Sometimes creditors sue people just because they are generally aggressive, miscalculated the clients resources or just some bs policy like Citi has every few years rather than being reasonable when someone has a justifiable hardship, in this case I think when creditors do get a chapter 7 thrown at them its shows that many people trying to settle are truly in a hardship, including possibly a candidate for BK, but wanted to try to resolve their debt without BK. Clearly if someone can truly qualify for a 7, or even a 13 with paying back less than they owe, they are in a hardship. I bet if we were able to see the stats of debt settlement dropouts over the years, the number of people who would of stuck to the program had they not got sued and who ended up filing a 7, or a 13 because they got sued are pretty darn high.

        Clients who have an attorney to settle their debt (who hopefully doesn’t charge advance fees) and who also regularly practices BK have an upper hand in the game. Even if the attorney has no intention of filing a BK for their client, does the creditor want to take the risk of suing that client when there is a higher probability that the client could filing BK? Sure the creditor could call the bluff if there is good reason, but its a strong upper hand to even push for a lower settlement.

      • Michael

        Jason, thank you for responding to some of my questions.

        Do you work in the debt relief space in any capacity? Your comments suggest you do. In what way? When you talk about spreading payments to all creditors equally based on ability to pay being fair, is that what you do?

        If you work in debt settlement your comment would suggest that you try, in observance of all fairness, to get the maximum and equal amount of money to creditors on behalf of your clients.

        This would be counter-intuitive.

        I have already agreed in part that navigating hybrid and flexible plans to address problem debt has obstacles. The only way you can do so successfully is to have an extremely deep understanding of all the varied aspects of collection stages and individual creditor behavior. I surmise from your comments that you don’t think a plan with built in agility to adjust is feasible.

        If you do operate in the space and know your work flow and its implementation in the way that you are committed to it, I do not endeavor to change your mind, or your focus. The fact that my work flow and the methods I advocate be understood and implemented where applicable and prudent are different than yours (and are in fact different than what is done throughout most of the industry) is no secret at this point.

        Jason, if a consumer came to you with 5 accounts they were unable to keep current, where 3 of the balances were in excess of 10k and where 2 of the balances were less than 1k, what would be the recommendations you would make to the consumer about settlement?

        Credit reporting and the skip tracing you refer to in your post are part of the equation, which I had pointed out above in response to Andy. You appear to weigh those issues, perhaps too much in some instances and too little in others.

        I would tend to agree with you that many in the industry are limited in their knowledge and understanding of the collection process from day one of delinquency until an account is successfully dealt with. I am going to be making a concerted effort to inform and educate all readers of this site through additional article submissions and comment participation by using my experience and observations. I hope others will contribute, or continue to contribute in the comments.

        I emphatically agree with you that debt settlement is primarily an alternative to chapter 13 and in some limited instances better than opting for chapter 7 when there are knock on effects that should be avoided if possible. The pool of suitable people to attempt settlement is much smaller than many market participants assume. This fact, as can be seen in the article above, and my follow up comments, find us in complete agreement.

        Your point about those who drop a settlement plan due to being sued who then file BK being high is likely a very accurate observation. It in fact helps to make my point about quicker program lengths being the only prudent method for underwriting and accepting people. Your point is so clearly in support of what I have presented that I am not sure why there would be any need to debate it further.

        Thank you for your brief definition of a hardship. Unfortunately, in order for me to comment in the way I had hoped, I would again have to assume more than I am comfortable about your reply. It would now be helpful if you could define “reasonably” as contained in your comment “someone who cannot reasonably afford to pay back their debts in full”.

        Your comment about settlement being done by an attorney who also provides BK services as part of their practice would theoretically be better. It is not the reality in practice today. Not with creditors, collection attorneys and agencies, percentage of savings when inclusive of fees (or likely without fees).

        Articles I am preparing for the coming week will speak more clearly to some of what has developed in the comments section of this one.

      • http://northeast-properties.com Andy Faria

        I’ve developed a belief that if the debt settlement industry doesn’t start to move in the direction of hybrid programs, it will disappear almost completely. We’re already seeing it and the writing is on the wall. Of course there will always be some demand for it, but there’s just not enough people that are truly qualified to fall behind on all accounts anymore. And it’s the same with debt management, an all or nothing approach automatically disqualifies most people. A hybrid program simply amounts to a better product.

        Yes, like Michael says, the games that creditors play will be an obstacle, but it can be overcome. After all, what is the difference between a hybrid situation and the last couple accounts on a ‘full’ debt settlement service? Not much, we all know that the creditors break balls on those last few, but they still settle.

        A hybrid program can create an entirely different dynamic between the providers and the creditors, and could amount to better dmp offers up front and more forgiveness on the dmp plans in progress. Especially if the providers reject any fair share, things could change.

        I think the most interesting aspect to a hybrid program is the ability to incorporate a debt rollup strategy into the second half of the program. Once a portion of the accounts have been settled, there will be extra cash built into their monthly payments . This surplus can now be piled on top of the dmp payments strategically between accounts. As accounts drop off, the surplus grows and is redirected to the next account, until the debt is gone and everyone wins.

        If a hybrid debt relief program is created, what is the need for full debt settlement or management providers that only offer one or the other? None, the hybrid covers both ends of the spectrum and everything between.

        The question I’m left with is, Who is better suited to create a hybrid debt relief program? An existing debt settlement provider?, or an existing debt management provider? It’s hard to say but if its going to be a settlement provider, they would probably need to have an increased focus on compliance, licensing, bonding, and overall standards. If it’s going to be an existing dmp provider they would need to tell the creditors to go screw on the fair share, in order to do it right. Based on the debt relief industry that I have come to know, I’m not sure if anyone has the guts to do either.

      • Michael

        Great comment Andy.

        There are perhaps a couple debt settlement service providers who have the infrastructure and funding to be able to adapt quickly to a hybrid model of debt relief.

        There are far more CCA’s that would be able to adapt more readily. The CCA’s have so far been unwilling or unable to walk away from fair share and grants they receive from creditors that creates the inherent conflict of interest that has always been an underlying concern.

        Perhaps IRS reg Q that limits creditor funding to 50% combined with the dramatic decrease in fair share and grant value will coax and or force some of the DMP providers to look to creative and innovative designs for the future of debt relief.

        The 60/60 efforts have gotten little traction and are problematic from the consumer side anyway. I have never published anything about the issues from the consumer and broader economic side relating to the 60/60-esque plans because they never materialized in any meaningful way when introduced in 2006, or since. I have an article planned for this site on this topic soon.

        Debt relief, or at least the debt settlement side of the fence, will look very different 18 months from now in my opinion.

  • SeanDSLegalPlan

    Great article Michael.

    We see lawsuits as a fairly typical element to a debt settlement program. Our settlement programs are generally longer than yours Michael, so I’m certain our experiences in seeing client lawsuits is greater – we’re at about 12%-15%. And, I agree, for the most part, that most of the large phone rooms (and certainly more) will gloss over the fact that it is very possible that at least one account in a debt settlement program will eventually see legal action. Setting realistic expectations is the best way to keep clients happy.

    From the performance based model we run, it is in our best interest, not only to tell the potential client they may be sued, but tell them in detail the reality that surrounds what happens when they default on their debt. I’m sure you will agree that the informed clients tend to become the successful graduates where the uninformed, or often, less trustworthy clients see lawsuits and panic = high fall out rate, less client success and less revenue. It can be difficult to help a client navigate a summons, let’s face it many just don’t have the stomach for it.

    In a perfect world the client would be able to have both, some form of legal representation & guidance, AND still be able to accumulate for a settlement. So long as they are well informed from the start they are more likely to see the process through.

    Thanks again for your great contribution.

  • Angelo

    Sad but true Michael. It wont take long for the new comers of the performance based model to realize that it’s smart business to track and share this data.

    Im a fan of the hybrid as well. Balances on Capital One accounts double within 12 months of default followed by a lawsuit (depending on the state). At that point, even a 50% settlement will result in a 100% settlement on the original balance; it makes more sense to put that account in a DMP program and work on settling the clients other accounts.

  • Michael

    Hi Robert,

    Thank you for the compliment. I would like to comment in reply to your well thought out observations and also some of what I take a smidge of offense to.

    Response in part to your Second:
    You are correct in your assessment that the segment of consumers who fit our narrow standard for acceptance as a member is small. I am also of the opinion that the standard for underwriting ANY person for settlement should be similar in nature. I am not alone in this underwriting phenomenon. There are a handful of other individuals who have been at this for 10 to 15 years who similarly only recommend the debt settlement option to those who can fit a more narrow time line. They are well respected by their peers. In fact, I know some who would not enroll someone who cannot complete the program in 12 months. Was it always this way? No, but it became more necessary due to changes in creditor trends.

    Response in part to your Third:
    While the debt settlement industry, at least in large part, does disclose the risk of being sued, would you agree that it is more of fact that is glossed over in the sales part of the process? For example, large volume sales floors with operations signed off by counsel tend to use a recorded third party verification (3PV) call at the close of the sale. Consumers are told that they will be asked several questions in the call by a totally separate and uninterested party and that the call will be recorded. If they answer any of the verifying questions posed to them in a form other than “yes”, the call will need to be interrupted and abandoned so that any point not clearly answered with a yes can then be re-discussed. Sales people will reference that a lawsuit is possible during their normal presentation, but often will refer to it as unlikely. They did cover it though, and the consumer understood it to be unlikely, so will answer the question about the risks of being sued during the 3PV in the affirmative.

    Would you suggest this type of disclosure and verification as more lip service to the risk, or as sufficient? The contract for service will have some content related to the risk of being sued as well. It is similarly glossy in nature with no real outline of when the risk begins and how it grows depending on the creditor and length of delinquency. It will most certainly fall short in outlining the risk is dramatically increased if the consumer has Capital One accounts and resides in Cook County Illinois (just one example).

    Response in part to your Fourth:
    You agree that the percentage of savings when an account goes to a legal track is not as good, but then say this fact is only argued by those with a book to talk that is different than an industry norm business practice. This is an odd thing to do – to agree, but to then argue with yourself and your own agreement. It should simply be held up as a fact regardless of anyone’s angle. The angle is irrelevant to the fact agreed to.

    This oddity is something I can liken to the same way that you and Jason have questioned the veracity and applicability of short term settlement time frames as only applying to someone who should have paid their debt back. If someone cannot qualify for a DMP based on income it is understood (by most I should hope) that they should then at least get informed about debt settlement as an option. Debt settlement involves not paying back your full balances in order to avoid bankruptcy. If you are involved in the debt settlement space you are by that fact advocating not paying creditors in order to reach settlement. Splitting hairs between settling within 6 months or 60 months is just that, hair splitting. The fact is that minimum payments cannot be maintained based on income. You may advocate consumers prolong the process out and expose themselves to increased risks and larger balance accretion by depending on monthly income to fund their settlements one by one. I advocate tapping every available resource in order to settle balances quickly in order to limit risks and to settle balances that are not inflated month after month for a period of sometimes years.

    Why do roughly 70% of chapter 13 filers historically fail to complete the repayment plan. It is rigid and prolonged over a predominantly 5 year period.

    I, and others like me, advocate a rip the band-aid off approach. Most of the debt settlement industry advocates a picking at the corners of the band-aid slowly approach. The reason for the slower approach in my opinion, and when contemplating the fact that up until recently 95% of the industry charged advance fees, is to soft sell and qualify more people into the option.

    I completely agree with you about the benefits to breaking the cycle and stepping off the pay for ever bus that for most is a one way ticket to debt slavery for often 20 plus years of minimum payments. Consumers can do just that, step off in 5 years or less with any of the debt options available. DMP’s last roughly 5 years, Chapter 13 is either 3 or 5 years (mostly 5), Chapter 7 is relatively immediate and debt settlement will be less than a DMP or chapter 13. All of the options available to deal with problem debt are a method to step off the bus and the vicious debt cycle. If that is the goal, they will all serve the purpose. Consumers should learn about them and choose what works for their situation.

    Before I get to some of what you commented that I take offense to, you closed with a comment that I am not sure I understand the way you may have meant it. You said:
    “I believe 18-24 month plans in most cases should avoid debt settlement and pay back the creditors. Those funds could be used to pay down the principal balances significantly and reduce the minimum payments.”
    I take that to mean what it appears to say; people who can complete an 18 to 24 month plan should pay their full balances in your view.
    Should not people who can complete a 36 to 48 month program do the same? Shouldn’t they sell off items to get cash to pay off an account in full? Should they not borrow from any source to pay off the debt? If that is not the case, should they not then seek protection from creditors in bankruptcy court instead of considering settlement? Are we not both representing the same thing, but simply disagree on the lengths those over indebted should reach to in order to be successful with the same concept.

    If it is degrees of suitability you wish to debate, I am all for it and am prepared to do so, but I suspect 75% or more of both our points and authorities will be identical.

    Now, to be sure I am clear, I take some, but only little exception to some of the comments you made. I would simply be remiss if I did not point them out and rebut them and in doing so provide something along the lines of full disclosure. I will point to them in the order they appear in your comment.

    1.“it would almost not make sense to operate a business (unless of course you use your approach of being on this site; advocating again and again “our guidelines are very strict” in which, I am not doubting the truth of your statement; but survival of your product with the traffic from this site, or another, is critical if not absolutely necessary.)”

    It makes perfect sense to operate a business in this capacity. Our model puts the consumer first, the creditor second and us last. This is how it should be in my view. Third parties offering debt relief were the last ones to arrive on scene and should not benefit more than those, or prior to those already involved. CRN guidelines are strict. If that is repeated it is to make a point that in our view those most suited to be successful with the settlement approach should consider whatever can be done to meet them.

    Traffic from any outside web site is not relied upon for our survival and is therefore not critical or necessary. Back links and mentions do have a value which is obvious.

    I cannot point to one customer that has ever enrolled with CRN due to their becoming aware of us through this site.

    CRN has been around, but has been obscure for the most part because we do no advertising, buy no leads, have no click campaigns etc… We exist based on word of mouth exposure and some little media exposure from content rich articles found in major media. We do have an affiliate rev share system available, but the only ones who take us up on it are those who tend to have a solid presence in their respective market and profession and who know settlement can work for the right profile and want to refer to someone they can trust. These types know they can get a much larger return for lead capture and conversion from virtually anywhere else, but prefer their reputation to profits. They are admittedly already successful in their own endeavors and are not exclusively money motivated.

    To head this off before it gets started: No, Steve Rhode nor Getoutofbet.org nor Myvesta Foundation is an affiliate to CRN. I am not opposed to the concept, but assume Steve would be.

    2.“The likelihood of lawsuits at 2% is a ridiculous number.”

    If you think 2% is ridiculous, what percentage is credible? Is 2% ridiculous because your frame of reference far exceeds this number? Are you willing to at least consider through your disbelief that a low percentage such as this has its roots in the fact that we operate with much more narrow suitability tests than the industry at large?

    3.“Anyone using this as a statistic either 1) ripping you off or 2) desperate for sales 3) former rip off mortgage broker..”

    This is the part of your comment I find most troubling. It assumes much. It must first assume that the 2% figure is false. It then assumes that a figure this low is so unfathomable that its publishing is intended to rip someone off. Someone willing to publish what you assume to be a falsity is desperate for a sale (by the way, we don’t sell at CRN, we sort – for suitable members and have no sales staff at all). Someone publishing a falsity of this nature in your view has a high likelihood of being a former subprime mortgage broker.

    The 2% number is not false and is in fact rounded up. ‘How bout them apples.’ To insinuate through an attempt at innuendo or bluntly stated “must be” that I am involved in a rip-off or am a former mortgage broker smacks with a touch of childish name calling by someone who cannot fathom something that is heretofore beyond their own personal frame of reference. I can only assume you made this comment without having researched anything about CRN or the hybrid model we use. It leads to my assumption that if you are involved in the debt settlement space in any meaningful way, you learned it and gained your experience only recently and from players who I would probably view as part of the problem the industry is experiencing both now and in the recent past. You state you have no statistics for a performance based model, which suggest you are either not involved in the settlement space, or if you are you only recently started transacting business using contingent fees, or are what has been dubbed a “loopholer”. Would you mind commenting on which of these best describes you?

    I, on the other hand, have performance fee data for CRN that dates back to 2006 and performance data unrelated to CRN that dates back to 2004. That is because that is the model for full debt settlement services I have been associated with exclusively for this period of time.

    4.“But this argument is typically used by those who have interest in alternative full service debt settlement models (DYI, computer, BK, CC, etc).”

    CRN is very supportive of DIY debt settlement. Every CRN member begins with thorough exposure to form, function and facts that they can and should negotiate any all debts they can on their own and indeed are able to get settlements at the same rate (even better) than a professional. At the risk of causing apoplectic shock to your system and prompting more name calling comments from you, our data shows that consumers settle on their own at a 3% better savings ratio than we do on their behalf when providing full debt settlement services. We are often asked to handle tougher scenarios and accounts in advanced stages of the collection process, but numbers are numbers.

    If I am to argue anything when drawing a comparison on the hybrid model CRN uses vs the typical business model used by the vast majority of settlement service providers, it will be based on fact, data, rational and logical benefits to consumers and their creditors and will be difficult for many in industry to swallow let alone adapt to. If you are so incredulous as to want to debate these things with me, I am perfectly okay with that and will in fact encourage the open debate and look forward to it. Please do me a favor first though; So that I know your depth of experience and knowledge of the subject matter, please give me more of an understanding of what part you have in the debt relief industry and how long you have been at it.

    Finally, and this part is as much for you as anyone else reading, I have been in discussions with Steve Rhode who has invited me (and others for that matter) to submit guest articles. I am obviously doing so and am actually just getting started with the effort.

    I have also agreed to help Steve in a build out of content additions to the getoutofdebt website. Most of which will be an educational endeavor. I do see potential for this effort to be perceived as some sort of rev share effort with this site. If that occurs, knowing Steve, it will be disclosed first and continuously thereafter.

    Robert, we do not know each other. For a first introduction, this rates…. not too well. Those in the industry who do know me respect me, my experience and my input. I have earned the respect of state and federal regulators I have come in contact with over the years as well as representatives from consumer advocacy groups.

    If you would like to get to know me, reach out anytime.

    Best Regards,

    Michael

  • Robert Stevenson

    First, this is a very well written article.

    Second, the segment of consumers you are talking about and that Jason Taylor brought up is so minuscule it would almost not make sense to operate a business (unless of course you use your approach of being on this site; advocating again and again “our guidelines are very strict” in which, I am not doubting the truth of your statement; but survival of your product with the traffic from this site, or another, is critical if not absolutely necessary.)

    Third, a consumer should not enroll into a Debt Settlement program without accepting the risk of a law suit period. Although, yes a 18 month plan would work much better (you should pay off your creditors if you can do a 18 month plan on most debts) to have money saved up. The likelihood of lawsuits at 2% is a ridiculous number. Anyone using this as a statistic either 1) ripping you off or 2) desperate for sales 3) former rip off mortgage broker..
    **However, the success of negotiating settlement on lawsuits is very high with sufficient funds. I have no statistics for this with the performance based model, but if the plan is well managed (settling with aggressive creditors first), funds can be properly utilized and avoid post-judgement remedies.

    Fourth, yes the percentages will be higher once the account goes to “legal”… But this argument is typically used by those who have interest in alternative full service debt settlement models (DYI, computer, BK, CC, etc).

    The benefit of a debt settlement plan is not solely the reduced principal reduction, but also the escape from a minimum payment plan that would keep a consumer indebted in most cases for 15-30 years. In some cases, it would be beneficial to look at the actual amount the consumer would have paid back continuing a minimum payment plan (if this is what they were making) vs. the amount they would pay back even at high %.

    I wish I had time to spell check, but I must get back to everyday life. On a final note, no doubt Michael’s response is very well written and accurate. I believe 18-24 month plans in most cases should avoid debt settlement and pay back the creditors. Those funds could be used to pay down the principal balances significantly and reduce the minimum payments. Law suits are possible, but I believe in the next 12 months clients enrolled in a responsible program length with No Up Front Fees should she this risk minimized… if not, a well managed plan the law suit will likely be able to settle.

  • Robert Stevenson

    First, this is a very well written article.

    Second, the segment of consumers you are talking about and that Jason Taylor brought up is so minuscule it would almost not make sense to operate a business (unless of course you use your approach of being on this site; advocating again and again “our guidelines are very strict” in which, I am not doubting the truth of your statement; but survival of your product with the traffic from this site, or another, is critical if not absolutely necessary.)

    Third, a consumer should not enroll into a Debt Settlement program without accepting the risk of a law suit period. Although, yes a 18 month plan would work much better (you should pay off your creditors if you can do a 18 month plan on most debts) to have money saved up. The likelihood of lawsuits at 2% is a ridiculous number. Anyone using this as a statistic either 1) ripping you off or 2) desperate for sales 3) former rip off mortgage broker..
    **However, the success of negotiating settlement on lawsuits is very high with sufficient funds. I have no statistics for this with the performance based model, but if the plan is well managed (settling with aggressive creditors first), funds can be properly utilized and avoid post-judgement remedies.

    Fourth, yes the percentages will be higher once the account goes to “legal”… But this argument is typically used by those who have interest in alternative full service debt settlement models (DYI, computer, BK, CC, etc).

    The benefit of a debt settlement plan is not solely the reduced principal reduction, but also the escape from a minimum payment plan that would keep a consumer indebted in most cases for 15-30 years. In some cases, it would be beneficial to look at the actual amount the consumer would have paid back continuing a minimum payment plan (if this is what they were making) vs. the amount they would pay back even at high %.

    I wish I had time to spell check, but I must get back to everyday life. On a final note, no doubt Michael’s response is very well written and accurate. I believe 18-24 month plans in most cases should avoid debt settlement and pay back the creditors. Those funds could be used to pay down the principal balances significantly and reduce the minimum payments. Law suits are possible, but I believe in the next 12 months clients enrolled in a responsible program length with No Up Front Fees should she this risk minimized… if not, a well managed plan the law suit will likely be able to settle.

    • Michael

      Hi Robert,

      Thank you for the compliment. I would like to comment in reply to your well thought out observations and also some of what I take a smidge of offense to.

      Response in part to your Second:
      You are correct in your assessment that the segment of consumers who fit our narrow standard for acceptance as a member is small. I am also of the opinion that the standard for underwriting ANY person for settlement should be similar in nature. I am not alone in this underwriting phenomenon. There are a handful of other individuals who have been at this for 10 to 15 years who similarly only recommend the debt settlement option to those who can fit a more narrow time line. They are well respected by their peers. In fact, I know some who would not enroll someone who cannot complete the program in 12 months. Was it always this way? No, but it became more necessary due to changes in creditor trends.

      Response in part to your Third:
      While the debt settlement industry, at least in large part, does disclose the risk of being sued, would you agree that it is more of fact that is glossed over in the sales part of the process? For example, large volume sales floors with operations signed off by counsel tend to use a recorded third party verification (3PV) call at the close of the sale. Consumers are told that they will be asked several questions in the call by a totally separate and uninterested party and that the call will be recorded. If they answer any of the verifying questions posed to them in a form other than “yes”, the call will need to be interrupted and abandoned so that any point not clearly answered with a yes can then be re-discussed. Sales people will reference that a lawsuit is possible during their normal presentation, but often will refer to it as unlikely. They did cover it though, and the consumer understood it to be unlikely, so will answer the question about the risks of being sued during the 3PV in the affirmative.

      Would you suggest this type of disclosure and verification as more lip service to the risk, or as sufficient? The contract for service will have some content related to the risk of being sued as well. It is similarly glossy in nature with no real outline of when the risk begins and how it grows depending on the creditor and length of delinquency. It will most certainly fall short in outlining the risk is dramatically increased if the consumer has Capital One accounts and resides in Cook County Illinois (just one example).

      Response in part to your Fourth:
      You agree that the percentage of savings when an account goes to a legal track is not as good, but then say this fact is only argued by those with a book to talk that is different than an industry norm business practice. This is an odd thing to do – to agree, but to then argue with yourself and your own agreement. It should simply be held up as a fact regardless of anyone’s angle. The angle is irrelevant to the fact agreed to.

      This oddity is something I can liken to the same way that you and Jason have questioned the veracity and applicability of short term settlement time frames as only applying to someone who should have paid their debt back. If someone cannot qualify for a DMP based on income it is understood (by most I should hope) that they should then at least get informed about debt settlement as an option. Debt settlement involves not paying back your full balances in order to avoid bankruptcy. If you are involved in the debt settlement space you are by that fact advocating not paying creditors in order to reach settlement. Splitting hairs between settling within 6 months or 60 months is just that, hair splitting. The fact is that minimum payments cannot be maintained based on income. You may advocate consumers prolong the process out and expose themselves to increased risks and larger balance accretion by depending on monthly income to fund their settlements one by one. I advocate tapping every available resource in order to settle balances quickly in order to limit risks and to settle balances that are not inflated month after month for a period of sometimes years.

      Why do roughly 70% of chapter 13 filers historically fail to complete the repayment plan. It is rigid and prolonged over a predominantly 5 year period.

      I, and others like me, advocate a rip the band-aid off approach. Most of the debt settlement industry advocates a picking at the corners of the band-aid slowly approach. The reason for the slower approach in my opinion, and when contemplating the fact that up until recently 95% of the industry charged advance fees, is to soft sell and qualify more people into the option.

      I completely agree with you about the benefits to breaking the cycle and stepping off the pay for ever bus that for most is a one way ticket to debt slavery for often 20 plus years of minimum payments. Consumers can do just that, step off in 5 years or less with any of the debt options available. DMP’s last roughly 5 years, Chapter 13 is either 3 or 5 years (mostly 5), Chapter 7 is relatively immediate and debt settlement will be less than a DMP or chapter 13. All of the options available to deal with problem debt are a method to step off the bus and the vicious debt cycle. If that is the goal, they will all serve the purpose. Consumers should learn about them and choose what works for their situation.

      Before I get to some of what you commented that I take offense to, you closed with a comment that I am not sure I understand the way you may have meant it. You said:
      “I believe 18-24 month plans in most cases should avoid debt settlement and pay back the creditors. Those funds could be used to pay down the principal balances significantly and reduce the minimum payments.”
      I take that to mean what it appears to say; people who can complete an 18 to 24 month plan should pay their full balances in your view.
      Should not people who can complete a 36 to 48 month program do the same? Shouldn’t they sell off items to get cash to pay off an account in full? Should they not borrow from any source to pay off the debt? If that is not the case, should they not then seek protection from creditors in bankruptcy court instead of considering settlement? Are we not both representing the same thing, but simply disagree on the lengths those over indebted should reach to in order to be successful with the same concept.

      If it is degrees of suitability you wish to debate, I am all for it and am prepared to do so, but I suspect 75% or more of both our points and authorities will be identical.

      Now, to be sure I am clear, I take some, but only little exception to some of the comments you made. I would simply be remiss if I did not point them out and rebut them and in doing so provide something along the lines of full disclosure. I will point to them in the order they appear in your comment.

      1. “it would almost not make sense to operate a business (unless of course you use your approach of being on this site; advocating again and again “our guidelines are very strict” in which, I am not doubting the truth of your statement; but survival of your product with the traffic from this site, or another, is critical if not absolutely necessary.)”

      It makes perfect sense to operate a business in this capacity. Our model puts the consumer first, the creditor second and us last. This is how it should be in my view. Third parties offering debt relief were the last ones to arrive on scene and should not benefit more than those, or prior to those already involved. CRN guidelines are strict. If that is repeated it is to make a point that in our view those most suited to be successful with the settlement approach should consider whatever can be done to meet them.

      Traffic from any outside web site is not relied upon for our survival and is therefore not critical or necessary. Back links and mentions do have a value which is obvious.

      I cannot point to one customer that has ever enrolled with CRN due to their becoming aware of us through this site.

      CRN has been around, but has been obscure for the most part because we do no advertising, buy no leads, have no click campaigns etc… We exist based on word of mouth exposure and some little media exposure from content rich articles found in major media. We do have an affiliate rev share system available, but the only ones who take us up on it are those who tend to have a solid presence in their respective market and profession and who know settlement can work for the right profile and want to refer to someone they can trust. These types know they can get a much larger return for lead capture and conversion from virtually anywhere else, but prefer their reputation to profits. They are admittedly already successful in their own endeavors and are not exclusively money motivated.

      To head this off before it gets started: No, Steve Rhode nor Getoutofbet.org nor Myvesta Foundation is an affiliate to CRN. I am not opposed to the concept, but assume Steve would be.

      2. “The likelihood of lawsuits at 2% is a ridiculous number.”

      If you think 2% is ridiculous, what percentage is credible? Is 2% ridiculous because your frame of reference far exceeds this number? Are you willing to at least consider through your disbelief that a low percentage such as this has its roots in the fact that we operate with much more narrow suitability tests than the industry at large?

      3. “Anyone using this as a statistic either 1) ripping you off or 2) desperate for sales 3) former rip off mortgage broker..”

      This is the part of your comment I find most troubling. It assumes much. It must first assume that the 2% figure is false. It then assumes that a figure this low is so unfathomable that its publishing is intended to rip someone off. Someone willing to publish what you assume to be a falsity is desperate for a sale (by the way, we don’t sell at CRN, we sort – for suitable members and have no sales staff at all). Someone publishing a falsity of this nature in your view has a high likelihood of being a former subprime mortgage broker.

      The 2% number is not false and is in fact rounded up. ‘How bout them apples.’ To insinuate through an attempt at innuendo or bluntly stated “must be” that I am involved in a rip-off or am a former mortgage broker smacks with a touch of childish name calling by someone who cannot fathom something that is heretofore beyond their own personal frame of reference. I can only assume you made this comment without having researched anything about CRN or the hybrid model we use. It leads to my assumption that if you are involved in the debt settlement space in any meaningful way, you learned it and gained your experience only recently and from players who I would probably view as part of the problem the industry is experiencing both now and in the recent past. You state you have no statistics for a performance based model, which suggest you are either not involved in the settlement space, or if you are you only recently started transacting business using contingent fees, or are what has been dubbed a “loopholer”. Would you mind commenting on which of these best describes you?

      I, on the other hand, have performance fee data for CRN that dates back to 2006 and performance data unrelated to CRN that dates back to 2004. That is because that is the model for full debt settlement services I have been associated with exclusively for this period of time.

      4. “But this argument is typically used by those who have interest in alternative full service debt settlement models (DYI, computer, BK, CC, etc).”

      CRN is very supportive of DIY debt settlement. Every CRN member begins with thorough exposure to form, function and facts that they can and should negotiate any all debts they can on their own and indeed are able to get settlements at the same rate (even better) than a professional. At the risk of causing apoplectic shock to your system and prompting more name calling comments from you, our data shows that consumers settle on their own at a 3% better savings ratio than we do on their behalf when providing full debt settlement services. We are often asked to handle tougher scenarios and accounts in advanced stages of the collection process, but numbers are numbers.

      If I am to argue anything when drawing a comparison on the hybrid model CRN uses vs the typical business model used by the vast majority of settlement service providers, it will be based on fact, data, rational and logical benefits to consumers and their creditors and will be difficult for many in industry to swallow let alone adapt to. If you are so incredulous as to want to debate these things with me, I am perfectly okay with that and will in fact encourage the open debate and look forward to it. Please do me a favor first though; So that I know your depth of experience and knowledge of the subject matter, please give me more of an understanding of what part you have in the debt relief industry and how long you have been at it.

      Finally, and this part is as much for you as anyone else reading, I have been in discussions with Steve Rhode who has invited me (and others for that matter) to submit guest articles. I am obviously doing so and am actually just getting started with the effort.

      I have also agreed to help Steve in a build out of content additions to the getoutofdebt website. Most of which will be an educational endeavor. I do see potential for this effort to be perceived as some sort of rev share effort with this site. If that occurs, knowing Steve, it will be disclosed first and continuously thereafter.

      Robert, we do not know each other. For a first introduction, this rates…. not too well. Those in the industry who do know me respect me, my experience and my input. I have earned the respect of state and federal regulators I have come in contact with over the years as well as representatives from consumer advocacy groups.

      If you would like to get to know me, reach out anytime.

      Best Regards,

      Michael

      • Anonymous

        Great article Michael.

        We see lawsuits as a fairly typical element to a debt settlement program. Our settlement programs are generally longer than yours Michael, so I’m certain our experiences in seeing client lawsuits is greater – we’re at about 12%-15%. And, I agree, for the most part, that most of the large phone rooms (and certainly more) will gloss over the fact that it is very possible that at least one account in a debt settlement program will eventually see legal action. Setting realistic expectations is the best way to keep clients happy.

        From the performance based model we run, it is in our best interest, not only to tell the potential client they may be sued, but tell them in detail the reality that surrounds what happens when they default on their debt. I’m sure you will agree that the informed clients tend to become the successful graduates where the uninformed, or often, less trustworthy clients see lawsuits and panic = high fall out rate, less client success and less revenue. It can be difficult to help a client navigate a summons, let’s face it many just don’t have the stomach for it.

        In a perfect world the client would be able to have both, some form of legal representation & guidance, AND still be able to accumulate for a settlement. So long as they are well informed from the start they are more likely to see the process through.

        Thanks again for your great contribution.

  • Michael

    Over time, virtually all of the large card issuers adjust to market trends and realities associated with their recovery goals. Because of trend and policy changes, we have often successfully implemented customized strategies similar to what you suggest where we can:

    Stagger delinquencies
    Encourage hardship plan enrollment
    Roll-up in some later efforts

    The one thing that has proven problematic when negotiating account balances direct with issuers prior to charge off and with assignees later on is their real time access to view the credit report of the account holder. Objections are sometimes raised when it can be seen that some unsecured accounts are kept current, while the account being negotiated has not been.

    Objections to smaller balance accounts where the minimum payment is 20 or 30 dollars can generally be overcome. Larger balances that are kept current, not so much. Can accounts be settled when these objections are raised? Yes, but the percentage of reduction may be affected. Not all the time, but enough to be mindful of it and to keep having to adjust due to the fluidity of changes across multiple creditors.

    I am a fan of hybrid and customized strategies that are designed to each individual. I would like to see that approach used more than what the industry in general has done, which is “the debts aren’t being paid and we will eventually settle them”.

    Finesse is not just a shampoo.

  • Michael

    Thanks for the support Angelo. It will be hard for many in the industry to grasp onto the concept of providing the type of upfront details that can cause a limiting factor to customer conversion. Given the current performance fee realities, I expect more companies will gradually gravitate to stricter suitability tests.

  • Andy Faria

    Michael, What are your thoughts on a “Hybrid” debt relief program, utilizing debt management for some accounts, settlement on others, then a roll-up strategy during the second half of the program?

    This could cut back big time on the legal risks associated with debt settlement, right? If the consumer isn’t falling behind on all accounts immediately, it allows more room to strategize and plan around legal pressure as they progress through the program.

  • http://northeast-properties.com Andy Faria

    Michael, What are your thoughts on a “Hybrid” debt relief program, utilizing debt management for some accounts, settlement on others, then a roll-up strategy during the second half of the program?

    This could cut back big time on the legal risks associated with debt settlement, right? If the consumer isn’t falling behind on all accounts immediately, it allows more room to strategize and plan around legal pressure as they progress through the program.

    • Michael

      Over time, virtually all of the large card issuers adjust to market trends and realities associated with their recovery goals. Because of trend and policy changes, we have often successfully implemented customized strategies similar to what you suggest where we can:

      Stagger delinquencies
      Encourage hardship plan enrollment
      Roll-up in some later efforts

      The one thing that has proven problematic when negotiating account balances direct with issuers prior to charge off and with assignees later on is their real time access to view the credit report of the account holder. Objections are sometimes raised when it can be seen that some unsecured accounts are kept current, while the account being negotiated has not been.

      Objections to smaller balance accounts where the minimum payment is 20 or 30 dollars can generally be overcome. Larger balances that are kept current, not so much. Can accounts be settled when these objections are raised? Yes, but the percentage of reduction may be affected. Not all the time, but enough to be mindful of it and to keep having to adjust due to the fluidity of changes across multiple creditors.

      I am a fan of hybrid and customized strategies that are designed to each individual. I would like to see that approach used more than what the industry in general has done, which is “the debts aren’t being paid and we will eventually settle them”.

      Finesse is not just a shampoo.

  • Michael

    I appreciate your opinion in this Jason.

    Your comment is likely similar to how many in the industry would react. Debt settlement has generally been represented and sold to consumers as viable based on monthly cash flow and income unique to each individual. Most operating in the industry today know no other way.

    We do not qualify suitability for debt settlement based on income alone. When a prospective client is limited to income only as a source for set aside funds, they will typically not be a good fit for our program and in my opinion a good fit for settlement at all (excepting only for creditor make up and state of residency).

    We consult with people experiencing the same hardships similar to any other debt relief service provider. What we may do differently than most is stress the import of accomplishing settlements as early as possible and provide the realities of why the need to be quick about it. Then we address the accumulation of funding and identify the sources that are often bankruptcy remote just as you suggest. Delivered in this way and in this order, you may be surprised by what can be learned and made available in order to succeed in plans with shortened time frames.

    We do the math, very strictly. Do we limit enrollment because of this stricture? Absolutely. Not by the 90% you infer in your comment though.

    Our fees are quite low, which helps to qualify and help more people than would have been the case had we charged industry standard type fees.

    Our average settlement inclusive of fees is much lower than the math you used in your comment.

    If you are incredulous to to an 18 month pre-qualifier, you would probably freak out at our average program length.

  • Angeloanzalone1969

    Great article Michael, very few DS companies talk about the risk of getting sued. This is the kind of data that should fall under everyones transparency efforts. Providing that kind of data to consumers is not only the responsibility of any legit the DS company but it enables us the ability explain to clients which states are more likely or less likely to sue, which firms are easier to deal with, which are the most aggressive, the DS companies previous experience with that law firm, and the outcome of the legal action. It’s time we all started sharing our data, it not only benefits DS company but gives the consumers more realistic expectations. Good job !!

  • Angeloanzalone1969

    Great article Michael, very few DS companies talk about the risk of getting sued. This is the kind of data that should fall under everyones transparency efforts. Providing that kind of data to consumers is not only the responsibility of any legit the DS company but it enables us the ability explain to clients which states are more likely or less likely to sue, which firms are easier to deal with, which are the most aggressive, the DS companies previous experience with that law firm, and the outcome of the legal action. It’s time we all started sharing our data, it not only benefits DS company but gives the consumers more realistic expectations. Good job !!

    • Michael

      Thanks for the support Angelo. It will be hard for many in the industry to grasp onto the concept of providing the type of upfront details that can cause a limiting factor to customer conversion. Given the current performance fee realities, I expect more companies will gradually gravitate to stricter suitability tests.

      • Angelo

        Sad but true Michael. It wont take long for the new comers of the performance based model to realize that it’s smart business to track and share this data.

        Im a fan of the hybrid as well. Balances on Capital One accounts double within 12 months of default followed by a lawsuit (depending on the state). At that point, even a 50% settlement will result in a 100% settlement on the original balance; it makes more sense to put that account in a DMP program and work on settling the clients other accounts.

  • Jason Taylor

    18 month window??? In almost all cases, if a client could afford to put aside that amount of cash, they do not have a hardship! I realize there are a few exeptions- people draining their retirement, borrowing money from relatives, but 90% of the time they would not have a hardship. Do the math.

    30K in debt- even assuming you got succesfull settlements including fees at 55%, thats over $900 a month, or 3% of the debt! More realistic- 65% and your at almost $1100 a month!

  • Jason Taylor

    18 month window??? In almost all cases, if a client could afford to put aside that amount of cash, they do not have a hardship! I realize there are a few exeptions- people draining their retirement, borrowing money from relatives, but 90% of the time they would not have a hardship. Do the math.

    30K in debt- even assuming you got succesfull settlements including fees at 55%, thats over $900 a month, or 3% of the debt! More realistic- 65% and your at almost $1100 a month!

    • Michael

      I appreciate your opinion in this Jason.

      Your comment is likely similar to how many in the industry would react. Debt settlement has generally been represented and sold to consumers as viable based on monthly cash flow and income unique to each individual. Most operating in the industry today know no other way.

      We do not qualify suitability for debt settlement based on income alone. When a prospective client is limited to income only as a source for set aside funds, they will typically not be a good fit for our program and in my opinion a good fit for settlement at all (excepting only for creditor make up and state of residency).

      We consult with people experiencing the same hardships similar to any other debt relief service provider. What we may do differently than most is stress the import of accomplishing settlements as early as possible and provide the realities of why the need to be quick about it. Then we address the accumulation of funding and identify the sources that are often bankruptcy remote just as you suggest. Delivered in this way and in this order, you may be surprised by what can be learned and made available in order to succeed in plans with shortened time frames.

      We do the math, very strictly. Do we limit enrollment because of this stricture? Absolutely. Not by the 90% you infer in your comment though.

      Our fees are quite low, which helps to qualify and help more people than would have been the case had we charged industry standard type fees.

      Our average settlement inclusive of fees is much lower than the math you used in your comment.

      If you are incredulous to to an 18 month pre-qualifier, you would probably freak out at our average program length.

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