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Debt Settlement Myth #6: It’s Safe To Take 36-48 Months To Settle My Debts

This is the sixth in a series of posts discussing the most common myths about do-it-yourself debt settlement. Most traditional debt settlement firms are still quoting program durations of 36-48 months, sometimes longer, and clients are led to believe that it’s safe to take that long. By “safe,” I mean a low risk of lawsuit activity. After all, multiple lawsuits will tend to push a client into bankruptcy and therefore defeat the original purpose of using the debt settlement approach.

To begin with, let’s make the obvious point that it makes little sense to avoid a 3-5 year Chapter 13 bankruptcy when you’ll be fully exposed to collection activity (including potential litigation) for 3-4 years in a debt settlement program. In bankruptcy, your creditors cannot sue you to recover. That is not the case with debt settlement. The longer a debt settlement program lasts, the greater the likelihood the client will see one or more lawsuits before the program is completed.

Sales reps still quote 36-48 month durations (or longer!) because it provides the illusion of relief to the client. “You mean I can pay $600/month for 36 months and everything will be handled?” That’s the pitch anyway. The reality is that enrollment into such a program does NOTHING to stop the in-progress collection efforts by the creditors. Once an account rolls past charge-off after 6 months of delinquency, the risk of litigation becomes higher and higher as time goes by. In my experience, lawsuit risk climbs to an unacceptable level when you push too far past the initial 12-month period after default. Prior to that, there is still risk, but it’s usually lower risk and much more manageable.

Here at ZipDebt, our clients settle most of their debts before charge-off, and the remaining accounts are usually resolved within a total program duration of 12 months. Why are we so much more successful at expediting this process vs. the folks quoting 36 month programs? Simple. We are not focused on “making the sale” by presenting an option that is simply not effective on the long run. We prefer to push our clients to “go find the money” to settle quickly, and that is precisely what most of them do once they understand how the math works! We get our clients to start thinking in terms of the ASSETS they still have left to work with, and converting those assets to cash, instead of relying exclusively on the client’s monthly budget the way most companies do. We aim for fast relief instead of slow torture!

Our results speak for themselves. It’s very difficult to find published data on litigation rates by any of the prominent debt settlement firms. The incidence of lawsuit activity is something they really don’t want to be common knowledge among consumers. When you can find such data, however, you’ll see that clients enrolled in traditional 3-4-year debt settlement programs routinely experience legal action. It’s almost impossible to take 3-4 years to settle your debts without seeing one or more lawsuits. By comparison, for the 2.5 year period of 2010-2011-2012 (to date), ZipDebt clients have reported 2,251 credit card account settlements. Out of those 2,251 settlements, only 41 were reported as having reached the status of a lawsuit, less than a 2% incidence rate. A rather glaring difference!

Myth busted. 36-month debt settlement programs are long obsolete, and lawsuit risk climbs to near certainty on one or more accounts during the second & third year of default. Fast-track debt settlement, where the debts are all settled inside of 12 months, is a far superior approach, with a lawsuit risk of approximately 2% per account.

This post was contributed by Charles Phelan at ZipDebt.

Debt Settlement Myth #6: It’s Safe To Take 36-48 Months To Settle My Debts by

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About Charles Phelan

Charles Phelan
  • Angelo

    While I understand the need to write marketing articles in
    an effort to gain customers what I can’t understand is why you feel the
    need to compare yourself to and bash debt settlement companies who allow 36+
    month programs?  Your service caters to 2
    separate niches, you only service those who can settle before charge off or
    within one year so why compare the two?  

    1) I have seen plenty of
    lawsuits filed within the first year of default so your claims are completely
    false. 

    2) EVERYONE who defaults on their debt is at risk
    of being sued, regardless if they are in a settlement program or purchased a
    DIY.

    3) For a low monthly cost, Veritas Prepaid Legal
    Plan provides an attorney to defend every account all the way to trial if necessary.

    4) DIY does NOTHING to stop the in-progress
    collection efforts either.

    5) Veritas Provides full FDCPA/TILA protection to
    address aggressive collectors.

    6) Performance based companies do not take any fees
    until they settle a debt so the client can cancel at any time without incurring
    any fees/costs or penalties. It does not get any safer than that.

    7) Program duration is determined by the consumer’s
    ability to accumulate funds to settle, it’s not a number that is created out of
    thin air.  Take overall debt, multiply by
    55% and divide by the amount the consumer is able to accumulate and that will
    determine the duration. 

    If you choose to reduce your liability and capture the most
    revenue by only helping out those who have enough money to settle within a year
    that is your choice but bashing DS Companies who choose to help those who need
    more time to accumulate should not be negatively portrayed as a “making the
    sale” just to make your DIY product more appealing. 

    I would love to have this debate with you but none of your
    claims are based off of real data.  You
    sell a DIY kit and you only sell it to consumers who can get out of debt within
    12 months.  If you are not settling the debt
    yourself, how accurate can your data be? 
    Are we to believe that every client who purchased your self-help kit has
    called you up after the fact, with the results of every settlement?  And the same goes with lawsuits; there is no
    possible way for you to track lawsuits and I find it hard to believe that you received
    calls informing you of every lawsuit.   

    Myth NOT busted…. I have plenty of data that proves successful 36+ month programs are common. Outside of the consumers financial situation worsening, by providing an attorney to defend and settle any lawsuit and offering no upfront fee settlements, a 36 month program can easily help consumers avoid bankruptcy.  

    Sorry Charles I’m not looking to be confrontational, I have always said there is a need for the DIY I have no problems with you or your program but there is no real comparison between the two and I dont agree that bashing one to gain more clients is a wise way to gain clients.  

    • http://www.avoidbk.com/ Jared Strauss

      Hi Angelo, 

      I understand that your reply is directed at Charles, but I’m not in the 36 month camp either and I’d like to tell you why. For me, it has nothing to do with bashing with the intent to gain more customers. Angelo, speaking for myself, we don’t even go after the same customers. As far as I’m concerned, we’re not even competitors. The issue at hand is about offering debt relief in a successfully reliable way. It’s about making sure that when I tell a consumer that I think I can solve their problem, that I confidently mean it. 

      There are too many things that can wrong during a 36+ month debt settlement program. Way too many. In my opinion, I would never be able to confidently tell a consumer that I felt I could solve their problem if they had to settle their debts in 36+ months. Can you?  And if so, how? 

      It should be immediately recognizable that when a company such as ZipDebt limits their services to consumers who can settle quickly vs. the traditional method, that they’re cutting off a huge segment of consumers who would otherwise qualify for their services, and in turn, make less money. This is an issue about ethics not money. I can confidently tell you from my experience at Debt Relief A La Carte, that the limitation of offering our services just to consumers who can settle their debts right away, significantly reduces our capacity to make money, in comparison to a 36+ month option. Why do I do it? Because, I only want to offer my services in circumstances that I think I can remedy. Offering a successfully reliable service is more important to me. 

      So, speaking for myself again, when I write articles and discuss my feelings about 36+ month debt settlement programs, its for the purpose of educating consumers about how dangerous and unpredictable they are. I want them to understand that bankruptcy is generally the better option. Again, it should be immediately clear that there is no financial motivation to do this. We go after two totally different segments. If I didn’t truly feel this way I would offer a 36+ month program too. 

      Now to your points… I would like you to elaborate on question 6 please. What about when a consumer falls out midway through a 36+ month debt settlement program? One of my biggest issues with time based settlement is the risk of settling a portion of the debts and not the remaining ones. Is the consumer not better off filing a chapter 7 and using their future funds to rebuild financially? Isn’t that a much better solution than taking the risk of settling half of the debt with no solution for the other half? A lot of these people end up filing bankruptcy, do you realize how much better off they would be if they just filed bankruptcy from the beginning? All that money they put towards settling some of the debts would not have been wasted. And, they would have filed bankruptcy much sooner, and in turn, recovered from it sooner.  

      Don’t get me wrong, I appreciate the fact that many people want to avoid bankruptcy. That is why both of our companies exist. However, aren’t consumers who need 36+ months to settle, better off if the file? They’ll generally regain new credit within 2 years of filing. If they take 4 years to settle they won’t regain new credit for approximately 5. They will eliminate the possibility of being sued. No one can say that about debt settlement. They will eliminate the associated stress if they file bankruptcy. No one can say that either about debt settlement. The exposure to post-charge off interest … you guessed it, eliminated. Granted most people don’t want to file and again I get that, but what someone wants and what makes sense are not always the same.  

      Question 7, I’m not picking on you, I understand that what you have described is the standard method of qualifying for debt settlement, but the evaluation should be about so much more than that. My next article actually discusses this very thing. You’ll see what I mean. 

      In response to the liability statement. For me, it’s not about my liability, it’s my clients liability that I’m concerned with. I could easily begin offering traditional debt settlement and make my services available to a much broader segment and make WAY more money by doing so. But I don’t, because I don’t believe it is successfully reliable enough to offer. Again, these choices to limit these services to consumers whom can settle their debts quickly creates much less, not more revenue. 

      You mention that you have data about 36+ month programs, please share it. 

      What percentage settle all of their debt? 

      When they do settle all of the enrolled debt, what is the settlement average? 

      I’m not interested in your overall settlement average. I would like to know what is the average when you settle all of a consumers enrolled debts? 

      What is the average length of time to settle all of the debt?

      What percentage of every enrolled account has been settled? 

      Example: 10,000 accounts enrolled – 5,000 settled

      How much overall debt has been enrolled? How much was settled? 

      Example: $100,000,000 enrolled – $50,000,000 settled

      How many settled some of their debt and filed bankruptcy anyway? 

      Angelo, thank you for making yourself available to talk about these things. You are one of the few that would. You deserve many kudos for that.

      • Scott Johnson

        Jared for now I have just one question who audited your
        data I am only looking for the firms name and dates Thank you in advance

      • http://www.avoidbk.com/ Jared Strauss

        What a great idea, Scott. How do I go about doing that? Thank you for being so helpful. 

      • Scott Johnson

        Would like to get input on suitability and screening process of candidates for debt relief programs/

      • http://www.avoidbk.com/ Jared Strauss

        “Would like to get input on suitability and screening process of candidates for debt relieff programs/” 

        Come again please?

      • Fitz

        Great question Scott. I asked the question in my “Holy Grail for DSCs” article on this site. Have you been able to gather much info Scott? Any conclusions?

        Also gotta add my two cents on the question of program lengths and will use an extreme example to make a point on how each consumer’s best approach to debt relief is case specific: for the right consumer, it is totally acceptable to take the 7 year approach that I call the “F’em” [F stands for "fight" of course :)]. Works like this: Don’t intend to pay them ever. If and when you get sued, defend it, you may win. If it looks like a loss is imminent, settle it (only if you have/will have anything that can be attached). According to folks on this site you will get sued on 1-4 of every 10 accounts. That means you wont get sued on 6-9! Thats a lot of accounts that consumer will pay zero. It is also been my experience that with 10 accounts, there is going to be a lot of collection screw ups, so much so that consumer will actually get money/debt relief. Naturally this works best with a lawyer that knows what they are doing, can make an overall suitability analysis, has some level of sophistication with collection lawsuits, can press collectors on legal requirements, etc. as well as what state is involved, etc. Point is this will work to eliminate a lot of debt for the right consumer. Naturally, this will take some time, but those with time, who can’t file/afford BK, and don’t care about thier credit report, this will work.This is not some “model” I employ, but I have done it many times over. Maybe I just like to fight collectors rather than be friends. F’em I say. Sure I lose sometimes, but on 10 accounts, I win far more than I lose… have a great weekend guys.

      • http://www.avoidbk.com/ Jared Strauss

        Hi Scott, 

        I was being serious. Who conducts these audits? I really want to get one done. 

      • Scott Johnson

        Thats is the problem there is not one – I posted our solution by using ISO 9001.
        The first step is a 3rd party -
        Second establish the parameters –
        3rd Recognized Authority

      • http://www.avoidbk.com/ Jared Strauss

        Thank you for the information, Scott. It was pleasurable speaking with you today. I look forward to doing so again. Have a good one.  

    • http://www.zipdebt.com/ Charles Phelan

      Right on cue, Angelo. I figured you would be the first to chime in with a negative response to this post. :-)

      First, I should mention that this is an article that I posted as part of a series on my own blog. Steve asked permission to repost it here, which I granted. It was not my intention to initiate a debate on the subject, but some of your remarks are so over-the-top I have no choice but to reply.

      Point by point:

      “1) I have seen plenty of lawsuits filed within the first year of default so your claims are completely false.”

      Did I say that lawsuits never happen in the first year? No. I said the risk was far lower in the first 12 months versus months 13 forward. I don’t see how this makes anything I said false. Also, I have no doubt your clients see plenty of lawsuits in the first year. That was the point of a different post in the series (on the unfortunate reality that involvement in a settlement program increases rather than decreases litigation risk).

      “2) EVERYONE who defaults on their debt is at risk of being sued, regardless if they are in a settlement program or purchased a DIY.”

      Correct. I never said otherwise.

      “3) For a low monthly cost, Veritas Prepaid Legal Plan provides an attorney to defend every account all the way to trial if necessary.”

      It’s great that you provide such a plan to your clients, since in a previous discussion you reported a lawsuit incidence rate of 38% per account. Obviously, they are going to need it before completing their program with you. :-)

      “4) DIY does NOTHING to stop the in-progress collection efforts either.”

      Correct again. Did I say otherwise? Nope. This is precisely why I urge my clients to “get out of Dodge” before the shooting starts.

      “5) Veritas Provides full FDCPA/TILA protection to address aggressive collectors.”

      See 3) above.

      “6) Performance based companies do not take any fees until they settle a debt so the client can cancel at any time without incurring any fees/costs or penalties. It does not get any safer than that.”

      You are using the word “safe” in a totally different context from how I used it in the article. I was referring to the risk of litigation, period, and nothing to do with fee structure.

      “7) Program duration is determined by the consumer’s ability to accumulate funds to settle, it’s not a number that is created out of thin air.  Take overall debt, multiply by 55% and divide by the amount the consumer is able to accumulate and that will determine the duration.”

      Where did I say that program durations where “created out of thin air”? You may not be aware of this, but as far as I know, I was the first person to use this exact same method of calculating program durations, way back in 2000. Based on tactics implemented by Citibank, MBNA (NAF, Wolpoff, Mann-Bracken, et al.), and others in 2001-2003, I considered it to have become obsolete by 2004.

      “I would love to have this debate with you but none of your claims are based off of real data.”

      Baloney! That is a patently false accusation. My data are real, accurate, and published.

      “You sell a DIY kit and you only sell it to consumers who can get out of debt within 12 months.”

      Also false. I sell a DIY kit combined with LIVE COACHING. I do not make it a formal requirement that they must finish within 12 months. Many people have sought my help and taken longer to settle their accounts. What I do is strongly recommend a fast-track (less than 12 months) approach, but I do not automatically exclude people who might have to take longer but still prefer debt settlement as their “Plan A” — provided they understand the risks and consequences of taking longer.

      “If you are not settling the debt yourself, how accurate can your data be? Are we to believe that every client who purchased your self-help kit has called you up after the fact, with the results of every settlement?”

      I get it. You really don’t understand what I do for clients, do you? Maybe you should have spent some time on my website before posting poorly-informed remarks like this one. For any client who orders a package that includes coaching support, I include DOCUMENT REVIEW. The answer to your question is that clients send me their settlement letters for review before they pay the creditor or agency. I have thousands of settlement letters in my database. Did you think I pulled the 2,251 recorded settlement number from thin air? Those are either settlement letters in my files, or results reported to me via email.

      “And the same goes with lawsuits; there is no possible way for you to track lawsuits and I find it hard to believe that you received calls informing you of every lawsuit.”

      Again, that’s because you apparently have no clue as to how I actually operate my business model. I find out about lawsuits ASAP because of the coaching provided to clients. The data are accurate. I am not so stupid as to be a 15-year veteran of this crazy industry and publish made-up data. What I said was that of the 2,251 settlements reported to me for 2010-2011-2012 (to date), only 41 reached lawsuit status, which is 1.8%. That is actual data as reported by my clients.

      “Sorry Charles I’m not looking to be confrontational, I have always said there is a need for the DIY I have no problems with you or your program but there is no real comparison between the two and I dont agree that bashing one to gain more clients is a wise way to gain clients.”

      Well, if you aren’t looking to be confrontational, then maybe you should re-read what you just posted today. :-)

      Angelo, I’ve noticed that you always use the word “bashing” whenever I publish something critical of traditional debt settlement firms and programs. You want to talk about bashing? I’ve been on the receiving end of it for 8 years, since beginning to promote the DIY method. My approach has been bashed endlessly by 1000s of sales reps working debt settlement boiler rooms. You know the pitch: we can get you better deals, we have “relationships” with all the major banks, you’d be crazy to try this yourself, and so on, ad nauseam. I’ve even had consumers tell me that debt consultants told them it was *illegal* for them to negotiate their own debt! Whatever it takes to make the sale, I guess.

      I have also had to endure a relentless flood of advertising, online articles, and blog posts/comments about the traditional approach being totally superior to DIY. It’s been an uphill battle all the way to convince consumers they can really do this themselves with proper guidance. When I have published data proving that my approach works more effectively than the traditional approach, I have been accused of either making up the data or helping consumers game the system when they really didn’t need to settle.

      I’m sorry that you don’t like my marketing approach, but you’ll just have to get over it. If I am aggressive in my marketing methods, it is out of necessity. I have to go the extra mile to “bash” an approach that has a higher failure rate, higher lawsuit rate, higher average settlement percentages, and much higher fees than my method — for the simple reason that it’s me against 10,000 other websites, etc.

      And … please don’t try to pretend that you aren’t bashing DIY when you’re on the phone with prospective clients who ask about it. Come on, my friend, admit it. You try to talk people out of the DIY approach whenever it comes up, don’t you? You tell people you can get them better deals than they can get on their own, right? Maybe you don’t write blog posts about it, but I’m willing to bet that you talk down the DIY method if you think it’s going to cost you a client.

      Anyway, Angelo, it almost sounds like you think I wrote this post with your company in mind. I didn’t, and I’m sure you do a good job for your clients. Actually, I wrote it with a few other companies in mind. :-) Like the outfit Damon mentioned yesterday who quoted a $700/mo debt settlement program to a consumer with minus $3,000 in monthly cashflow before even considering their credit card payments or settlement funding.

      Peace!

      • Scott Johnson

        Charles for now I have just one question who audited your data I am only looking for the firms name and dates Thank you in advance

      • http://www.zipdebt.com/ Charles Phelan

        Scott, that would be me. :-) If you’d care to
        recommend a firm for data auditing, perhaps I will have it reviewed formally.
        That might go a long way to silencing some of my more vocal critics.
        :-)

      • Scott Johnson

        My interest is 2 fold  - creating industry standards for performance numbers – everyone using the same model and a framework of suitability and screening -placing the consumer in the right program – hopefully you and others are interested

      • http://www.zipdebt.com/ Charles Phelan

        P.S. Are you going to ask Angelo the same question? :-)

      • Scott Johnson

        Actually Angelo sent me his data file for analysis

      • http://www.zipdebt.com/ Charles Phelan

        That’s great. So I take it that means the data published on his website has not previously been audited either? I’ll look forward to the published results of your analysis.

      • Scott Johnson

        @cjphelan:disqus 
        I have to honor my NDA with Active debt and received permission to even post that I have analyzed their data -that being said I can not release a published report. When it comes to data comparison it does not appear that the industry uses the same ruler. As with my company we choose to be audited under the ISO 9001 standard but then again we were being audited on the formulas we developed. Not sure of the number of companies that went thru this process but I feel confident that it would be very likely to find disparate computations and formulas used to evaluate the effectiveness of offered debt relief programs. My experience on data I have reviewed even attrition rate calculations were different in every company. So perhaps those that are interested in working together on a project to establish valued formulas will step forward.

      • Angelo

        Your point: …..”Did I say that lawsuits never happen in the first year? No. I said the risk was far lower in the first 12 months versus months 13 forward. I don’t see how this makes anything I said false. Also, I have no doubt your clients see plenty of lawsuits in the first year. That was the point of a different post in the series (on the unfortunate reality that involvement in a settlement program increases rather than decreases litigation risk). 
        You guys crack me up.  There you go spreading lies that consumers in DS programs receive more lawsuits.  Not true and you have no data to back that claim.  The point I was making is that EVERYONE who defaults is at risk.  You are the only one who believes this and so you keep insisting its true.  Its not true just because you say its true.  
        Your point:….. “It’s great that you provide such a plan to your clients, since in a previous discussion you reported a lawsuit incidence rate of 38% per account. Obviously, they are going to need it before completing their program with you. :-)
        Another spin:  I had previously clarified that claim and you are twisting it for your benefit so I will not even go into the numbers again.  Nice spin though.
        Your point: ……”You are using the word “safe” in a totally different context from how I used it in the article. I was referring to the risk of litigation, period, and nothing to do with fee structure.
        Litigation is not an issue when the consumer has full legal representation to defend every lawsuit …still safe.
        Your Point: …..”Where did I say that program durations where “created out of thin air”? You may not be aware of this, but as far as I know, I was the first person to use this exact same method of calculating program durations, way back in 2000. Based on tactics implemented by Citibank, MBNA (NAF, Wolpoff, Mann-Bracken, et al.), and others in 2001-2003, I considered it to have become obsolete by 2004.
        And from what I understand you failed at it which is why you are a one man shop pushing a DIY kit from your home office.  The only reason I waste my time with you is because someone needs to call you out on your unsubstantiated claims and fear mongering in an effort to gain customers.  
        Your Point:……”Baloney! That is a patently false accusation. My data are real, accurate, and published.
        That’s bullshit, I find it hard to believe that every person who purchased your DIY or who you even coached, took the time to update you on ever single settlement and lawsuit they received.   Where on the other hand I can provide data for every settlement we have ever negotiated, the savings, the fees, the averages etc…How could you possibly track that data?  Nope, not buying it.
        “You sell a DIY kit and you only sell it to consumers who can get out of debt within 12 months.”
        Your Point:…….”Also false. I sell a DIY kit combined with LIVE COACHING. I do not make it a formal requirement that they must finish within 12 months. Many people have sought my help and taken longer to settle their accounts. What I do is strongly recommend a fast-track (less than 12 months) approach, but I do not automatically exclude people who might have to take longer but still prefer debt settlement as their “Plan A” — provided they understand the risks and consequences of taking longer.
        First it was only a 12 month program and anyone who cannot pay off within 12 months was referred to CRN and now you are saying that you will accept longer duration? So which is it?  That statement contradicts this whole article. 
        12 months is good24 months is good36 months is no good?  Show me the data please that backs this claim
        Your Point:…..”I get it. You really don’t understand what I do for clients, do you? Maybe you should have spent some time on my website before posting poorly-informed remarks like this one. For any client who orders a package that includes coaching support, I include DOCUMENT REVIEW. The answer to your question is that clients send me their settlement letters for review before they pay the creditor or agency. I have thousands of settlement letters in my database. Did you think I pulled the 2,251 recorded settlement number from thin air? Those are either settlement letters in my files, or results reported to me via email.
        Average consumer has 7 accounts so by your numbers you have sold your kit to about 320 consumers since 2004?  So you sell about 40 kits a year?  Seriously Charles?  Either you are smaller than I thought or your data is not accurate.  There’s no way to survive selling 40 kits a year so my guess is that your data is not accurate :)  
        Your Point:….Anyway, Angelo, it almost sounds like you think I wrote this post with your company in mind. I didn’t, and I’m sure you do a good job for your clients. Actually, I wrote it with a few other companies in mind. :-) Like the outfit Damon mentioned yesterday who quoted a $700/mo debt settlement program to a consumer with minus $3,000 in monthly cashflow before even considering their credit card payments or settlement funding.
        Then bash the bad players, not the program itself.  

        Get Out of Debt (http://s.tt/1ioh7)

      • http://www.zipdebt.com/ Charles Phelan

        Angelo,

        From your website: “Active Debt Solutions clients experienced legal activity on 38% of accounts.” I did not say 38% of clients. I was not “spinning” anything, only quoting your own statistics back to you. For every 100 creditor accounts enrolled in your program (however many clients that may translate to), 38 will go to lawsuit status. Are you saying this means something other than what it says?

        “Litigation is not an issue when the consumer has full legal representation to defend every lawsuit …still safe.” Yeah, tell us another one, my friend. Let’s do a survey of consumers considering the debt settlement strategy. I’ll bet the average consumer would run in the other direction if they truly understood that 38% statistic of yours.

        “And from what I understand you failed at it which is why you are a one man shop pushing a DIY kit from your home office.  The only reason I waste my time with you is because someone needs to call you out on your unsubstantiated claims and fear mongering in an effort to gain customers.”

        You are about 10 light-years off target with this ad hominem attack. I didn’t “fail” at anything. I left a company that was going strong with thousands of clients enrolled. I left because I was disgusted at the fee structure the company’s owners were planning to shift to. Within a few months of my departure, they changed to the 15% front-loaded fee model that I had fought bitterly against (in favor of continuing with a pay-for-performance model).

        “I find it hard to believe that every person who purchased your DIY or who you even coached, took the time to update you on ever single settlement and lawsuit they received.   Where on the other hand I can provide data for every settlement we have ever negotiated, the savings, the fees, the averages etc…How could you possibly track that data?  Nope, not buying it.”

        Believe what you like, but at least READ what I’ve written before you reply. I have never claimed that 100% of the settlements that clients have negotiated using my training materials and coaching advice were reported to me. Certainly, people have bought the materials, gone on to settle their debts, and not reported back to me. It is, after all, a DIY program!

        What I actually said was that I have data for 2,251 settlements REPORTED TO ME BY CLIENTS for 2010-2011-2012 to date. What is so hard about that to understand? They fax me a letter, I review it and add the figures to my tracking database. Excel works very well for this purpose. :-)

        You seem to be under the false impression that I only “sell DIY kits” and then leave the client hanging out there on their own with no follow-up. What you do not seem to understand is that I COACH these people through the process, at whatever level of support they deem necessary for their situation. I answer thousands of client emails per year, and log hundreds of hours of phone time. The reason I have the data is because I’m acting as a sort of “clearinghouse” for my DIY clients, the vast majority of whom want to run their letters by me for review before they present payment on a settlement.

        “First it was only a 12 month program and anyone who cannot pay off within 12 months was referred to CRN and now you are saying that you will accept longer duration? So which is it?  That statement contradicts this whole article. 12 months is good24 months is good36 months is no good?  Show me the data please that backs this claim”

        I did provide the data, but you choose not to believe it. I have never made it a formal requirement to complete in less than 12 months, just a very strong recommendation. It’s a question of escalating risk as time goes by. Optimum is 6-9 months, less than 12 months carries more risk but still manageable for most clients. 24 months means the client should definitely expect some lawsuits. 36 months — they should take a closer look at the benefits of Chapter 13. I take it case by case, based on who the creditors are, what state the client lives in, and what the resources for settlement look like.

        “Average consumer has 7 accounts so by your numbers you have sold your kit to about 320 consumers since 2004?  So you sell about 40 kits a year?  Seriously Charles?  Either you are smaller than I thought or your data is not accurate.  There’s no way to survive selling 40 kits a year so my guess is that your data is not accurate :)”

        Your guess would be totally wrong then, and again you take shots without processing what I actually said. The 2,251 account settlements were only for 2010-2011-2012 through 7/15, not since 2004. During that period, clients settled more than $28.2 million of balances (at time of settlement) for a total of $9.2 million. How much debt did Active Debt settle in that same period?

        FYI, ZipDebt has serviced well over 2,000 clients in total since inception. That still makes us a boutique compared to most other firms, but I have never claimed otherwise. And yes, I work from an office in my home, a fact that I openly share with my clients. Consequently, I have a very low overhead, which translates to a much lower fee structure. :-)

      • http://www.activedebt.com/ Angelo Anzalone

        13 paragraphs of fluff, backpedaling and diversion but my argument remains the same.  There’s no possible way for your claims to be accurate, audited or not.  You can spin and divert the conversation but you are not fooling anyone.  You cant tell me that every consumer who has purchased your kit has updated you on every single settlement and lawsuit, it’s an impossibility. With your logic of making claims you might as well claim that 100% of those who buy your kit will succeed.

        You and I both know that its the bad players who harm the consumers, not the 36 month settlement programs.  

        And since we are speaking frankly, let me add that in my opinion anyone who has the ability to payback their debt within 12 months does not have a genuine hardship and should pay it all back.  Not only is it unethical but it borders on fraud.  

      • http://www.zipdebt.com/ Charles Phelan

        “There’s no possible way for your claims to be accurate, audited or not.”

        So even if I were to publish data that was audited by a neutral third party, you still would not believe it? Nice way to prove to everyone reading this that you are hopelessly biased on this subject.

        I get that you don’t like my marketing message. So go publish your own articles and rebut me if you wish to. That would be more productive than attacking me personally or making false accusations that my clients are committing fraud, etc. What a crock!

        I’ll leave it at that. There is no point in arguing with someone who won’t even respond to specific questions put to him.

      • http://www.activedebt.com/ Angelo Anzalone

        Charles, I am hopelessly biased on this subject as you are but my bias is based on data, not a hidden agenda to scare someone into my program.  You cannot back your claims that a 36+ month program is a better option than BK, you only state that to scare people into borrowing money from their retirement accounts to settle within 12 months.  Your whole article is nothing but a scare tactic so if you are going to write self serving marketing messages that are untruthful then I have no choice but to call you out on it.  Until next time….

      • http://www.avoidbk.com/ Jared Strauss

        Hi Angelo, I mean no disrespect, but this fraud comment makes me question just how well do you know your business? 

        Isn’t it our responsibility as debt relief providers to first evaluate if a prospective candidate can resolve their problems quickly? By doing so, you’re able to minimize the possible dangers and exposures during your program and your clients benefit by recovering sooner and becoming productive again. 

        Furthermore, you continue with your commentary and claim this and that, but with no substance. I have posed several questions both in this article and in my previous article, Part 5, that have continued to go unaddressed.

        I have answered every single question that has been posed to me here. Yet, just about every question I posed to you or Scott went unanswered. Literally. 

        You claim that settling debts over 36 – 48 months is safe. I want to believe you, but from my expertise I disagree with you. 

        However, I’m very open-minded and that is why I’m asking these questions. If you can show me through your data that 36 – 48 month debt settlement programs are safe and reliable, I’m willing to listen. 

        The word debate has been thrown around a bit in these last two articles. So far, we have failed to meet that definition. So, back to those questions and lets really take a deep look at this. 

        For 36 – 48 months programs…. 

        Feel free to omit your existing clients, just count the completed and unenrolled ones. 

        What percentage settle all of their debt? 

        When they do settle all of the enrolled debt, what is the settlement average? 

        I’m not interested in your overall settlement average. I would like to know what is the average when you settle all of a consumers enrolled debts? 

        What is the average length of time to settle all of the debt?

        What percentage of every enrolled account has been settled?
         
        Example: 10,000 accounts enrolled – 5,000 settled

        How much overall debt has been enrolled? How much was settled? 

        Example: $100,000,000 enrolled – $50,000,000 settled

        How many settled some of their debt and filed bankruptcy anyway?

      • http://www.activedebt.com/ Angelo Anzalone

        Charles, my position and argument remain but I admit that sometimes my passion for the truth can be intimidating and I say things in the heat of the moment so I apologize for that.   

        Jared, Im not sure what answering those questions has to do with the conversation but to show the readers that my words are backed by facts, give me a few days and I will provide them.  

      • http://www.avoidbk.com/ Jared Strauss

        Angelo, that is awesome. Thank you for doing so. 

      • http://www.zipdebt.com/ Charles Phelan

        Thanks, Angelo, I appreciate the apology. We can certainly agree to disagree, but let’s try to keep it professional rather than personal. And just to be 100% clear, I *did* have the bad actors in mind when I wrote that piece. It was only intended to be a short blog post on the subject, not a company-specific indictment. I had in mind the bogus “34% success” rate touted by TASC during the hearings, and the FTC’s take that less than 10% complete traditional settlement programs, etc. I’m hoping to see an article by you soon in which you explain your methods and review the data from your results.

      • http://www.activedebt.com/ Angelo Anzalone

        I guess that was what was so frustrating Charles, your article compares data taken from a failed, antiquated  model that has been illegal for almost 2 years so it was an unfair comparison.  As promised, I will answer Jared’s questions and provide my data so you can see why I’m so quick to take the gloves off.

      • http://DamonDay.com/ Damon Day

         Something tells me what I am about to say is going to go over about as well as a fart in church, but oh well.

        Angelo, I love your new avitar by the way, but I am not sure why you are attacking Charles.

        First let me say that this issue can’t be argued in absolutes and the whole debt settlement vs BK discussion can only really happen when you have a real client with actual financial circumstances, emotions, and life in general going on around them. Only then can you determine what would make the most sense for the client.

        I read the above article and what Charles is saying about risk of litigation going up the longer you don’t pay your creditor is true. I am confused on why you would ask Charles to prove this point.

        Some of the things you went after him for had nothing to do with this article.

        The overall point of the article was very simple. Debt Settlement sales people often quote long settlement terms because they want to give the client a low “monthly payment” to make the sale, rather than exploring other options such as how to possibly settle the debts faster with a little creativity, or having a serious discussion about filing bankruptcy. They tend to jump right to the 36 to 48 month plan because it is easier to sell with the illusion of smaller monthly payments.

        That was his point, and to his point he is 100% correct. Again, he was talking about debt settlement sales people in general.

        Also Angelo, I was very taken aback by your statement of a consumer bordering on fraud if they can settle their debt within 12 months. I suspect you don’t actually believe that and were just taking a stab at Charles in the heat of the moment.

      • http://www.activedebt.com/ Angelo Anzalone

        That wasn’t such a bad fart Damon, not too loud and not too smelly.  

        I asked Charles for his data that supports his claim because I have data that shows success rate with 36+ month programs is higher than the success rate of bankruptcy.  

        Aren’t you sick and tired of self serving claims that are not backed by data?   

        I called him out on his article because it reminds me of the homeland security scare tactics….. “36 month programs are really really bad for you, and if you can’t pay your debts within 24 months you could die… so buy my kit, liquidate all your assets and retirement account and I will save you !!!”  

        His article was nothing more than a scare tactic to discourage consumers from a longer program and convince them to liquidate their retirement accounts and buy his kit.

        I agree that competition and greed has forced some companies to extend program durations and take advantage of consumers who are only concerned with the monthly outlay and yes, that strategy is harmful but instead of making false claims, maybe charles should try educating consumers on how to avoid the bad players?

      • http://GetOutOfDebt.org Steve Rhode

        Better than Chapter 13 or Chapter 7 success rates?

      • http://www.activedebt.com/ Angelo Anzalone

        I cant reply to your post Steve.  
        Better than a 13, yes.  From my research, chapter 13 has a nationwide average completion rate of 20-25%.  (as low as 11% and as high as 41%, depending on the state).  These numbers may fluctuate yearly but as an average they are what I base my claims from.  

      • http://GetOutOfDebt.org Steve Rhode

        Not sure if this is of interest.

        “Chapter 13 bankruptcies, the payment plan approach, are reported as having a high failure rate like debt management plans or debt settlement, but what is not frequently mentioned is that many of those failed chapter 13 plans are converted to chapter 7 bankruptcy cases and the debts are fully discharged that way.

        Based on feedback from bankruptcy attorneys, and looking at the total number of bankruptcy cases filed by chapter, it appears that nearly 90% of bankruptcy filers are able to repay what they can afford or discharge their debt through bankruptcy.”

        From http://getoutofdebt.org/7233/the-truth-about-the-failure-rates-and-completion-rates-of-credit-counseling-debt-settlement-and-bankruptcy

      • http://www.activedebt.com/ Angelo Anzalone

        That same article starts with ….”Bankruptcy data was available but the hard statistic to obtain was the disposition of chapter 13 cases. Some bankruptcy attorneys were willing to provide me with their experiences on chapter 13 cases but I was not able to get an official number from the American Bankruptcy Institute (ABI) and unable to get a timely official response from the Executive Office of the United States Trustee (EOUST).

        I am curious though how many 13′s convert to a 7 and how many of those actually qualify?

      • http://GetOutOfDebt.org Steve Rhode

        All I can go on is the feedback I received from front line bankruptcy attorneys as demonstrated in the article.

        Keep in mind that 75%+ of bankruptcy files, file a chapter 7 with nearly a 100% success rate.

        Maybe it was not worded clearly enough but the dozen attorneys I surveyed across the U.S. for that article all said about the same thing, that nearly 90% of their chapter 13 bankruptcies resulted in a debt discharge either through the 13, but the majority that failed converted to a 7.

      • http://www.activedebt.com/ Angelo Anzalone

        Im a huge fan of the 7′s so no arguments here. I tell everyone, if you can qualify for a 7 then do it and dont think twice about it but if you dont qualify for a 7 and the attorney suggest a 13 then come back and lets talk settlement. 

        In my experience, BK attorneys are like DS companies… there are way too many of them and you have to weed through the ones who are clueless.  Dont get me wrong Im certainly not bashing BK attorneys. I have an extensive network of kick ass BK attorneys that I refer clients to often but I do speak with plenty of consumers who fall out of 13′s and dont qualify for 7 so Im not convinced on the 90% claim.  
         Is there any tracking or a report that shows the number of 13′s that convert to 7′s?   

      • http://GetOutOfDebt.org Steve Rhode

        And let me add that ultimately the final answer rests with the consumer. I don’t think any particular solution should be pushed with bias but to give people the factual information to allow them to make the best decision for them.

        Does data exist, the technical answer is yes. But, I have not come across a source yet, other than interviewing individual bankruptcy attorneys, that provides a conversion dataset. Even the EOUST does not seem to be able to provide it.

        I suppose if you did a survey of historical filers and pulled bankruptcy data for them you could technically come up with a conclusion based on a statistical analysis.

        I’ll think about it and see if I can figure out a reasonable way to do that.

      • http://www.activedebt.com/ Angelo Anzalone

        Absolutely, that goes without saying.  As financial situations change so does the available options. Its hard not to be biased when offering only one solution.  Ive always educated and offered every option – debt management, settlement and bankruptcy.  You will never hear me bash any particular program, just the bad players.

        I’d like to see a day where Scott’s Debt Calculator is a tool that all companies use to determine suitability and truly be able to offer the best solution.

  • http://www.avoidbk.com/ Jared Strauss

    Great post! For the consumers that are reading this, this is excellent information. You are generally much better off filing bankruptcy if you can’t settle your debts quickly.

    Keep up the great work, Charles.   

    • http://www.zipdebt.com/ Charles Phelan

      Thanks, Jared.

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