A very smart person said to me yesterday that the money saved with debt settlement companies is actually owned by the client (consumer). And that turned on a light bulb.
Let’s not fool ourselves, there is a pretty high chance the coronavirus infection is going to lead to individual financial hardships. From lost sales, reduced work hours or job loss. That’s just a given and it is happening already.
If You Are In a Debt Settlement Program Think About This
The majority of commercially sold debt settlement programs include a function where the money is debited from the consumer each month and deposited in a third-party escrow account in hope enough is saved for future settlements.
Those deposited funds actually belong to the client and in a unique and drastic emergency, as we face now, the money may be just the emergency fund people need in a time of crisis.
You can ask the third-party escrow company to send you your money back to use in an emergency.
That Being Said – There is More to Think About
Calling your escrow company that is holding your money and just asking for it back is absolutely NOT the first thing you should do. Draining that escrow account and terminating the debt settlement company service should only be done if it makes sense and is part of a plan, not an emotional reaction.
Let me give you a few examples:
- You’ve suffered a reduction in income. You may want to consider temporarily suspending further deposits into the escrow account so you can make ends meet on the reduced income. Leave the escrowed funds alone for now.
- You realize that your new income is going to be your new normal and you can’t afford the settlement program anymore. In that case, it might make sense to file bankruptcy and use the money saved in the escrow account to pay for the bankruptcy filing. Bankruptcy is the least expensive way to eliminate your debt in the shortest period of time.
- Clearing out your escrow account and using the money to get through the next couple of months without a plan to deal with the underlying income loss, makes no sense. Don’t do that. All that will happen is you will clean out that emergency money and still be left in a bad situation.
- It might be smart if your financial future is uncertain to stop the debt settlement escrow deposits, don’t drain the escrow account, and pause to better understand what your new future is going to be. If creditors come knocking you can use the money to file bankruptcy to get a fresh start.
These are just a few examples. The permutations are endless and unique for each individual situation.
So Here is What I Suggest
The worst thing you can do is make any knee-jerk emotional decisions at this time. But that is easier said than done. When facing traumatic financial situations human nature has cocked us to panic.
The significantly smarter thing to do is to talk to a third-party debt coach like Damon Day who can help you walk through the best plan of action for your given situation. Damon is a top-level debt coach who can help you make the right decision for you based on facts and reality.
You should also feel free to turn to anyone you trust for advice. But the one person you should not go to first is the salesperson that sold you the settlement solution, to begin with. They may have a vested interest in keeping you in the program to protect their sales commission.
Another person you can talk to is Michael Bovee. Michael is also a top-level debt coach and someone else I trust but he is very busy being involved in something new that will change the world.
Part of the ultimate recommendation you might get from either Damon Day or Michael Bovee may just be to use that money that is yours in a debt settlement escrow account towards a solution for your situation, like bankruptcy.
Make good choices and let’s be careful out there.
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Steve, you stated “You’ve suffered a reduction in income. You may want to consider temporarily suspending further deposits into the escrow account so you can make ends meet on the reduced income. Leave the escrowed funds alone for now.”. Consumers should realize law firms performing debt settlement, and the escrow companies even if the accounts are frozen (Put on hold), are charging fees monthly, and can drain the accounts placing the client in a worse position later. If the funds are needed, the client can close the account the the money now, take advantage of what the credit card or other creditors are willing to do to assist. They may be better off. In fact they are better off not using these companies who prey on the weak and desperate.
I totally agree it is nuanced. Probably my major point was taking a breath and come up with a plan to deal with the new situation. An emotional reaction from consumers either way is not going to end well.
Thank you for your comment.
If the consumer lives in a state like Georgia which rigorously regulates debt settlement programs, and uses an escrow account, the consumer should contact a Georgia consumer lawyer. Escrow accounts are not permitted for debt settlement programs under Georgia’s law regulating debt settlement programs. A debt settlor who violates the Georgia requirement that the debt settlor must transmit funds within 30 days to the consumer’s creditors may give the consumer a cause of action all payments transmitted in the debt settlement program plus statutory damages of $5,000. The violation is an automatic violation of Georgia’s Fair Business Practices Act which affords treble damages to the consumer. If the consumer is aged 60 or more, additional protections may apply.
Good point.