Podcast

Why Debt Settlement is Like Jumping Out of an Airplane

Written by Steve Rhode

This time Damon Day and Steve talk about debt settlement. Or at least that’s what the podcast was supposed to focus on. It didn’t take long before it ran off the rails.

But the show covers:

Listen Below

Transcript

Intro (00:00):
Welcome to the Debt-Free Dudes podcast with Damon Day. If you want someone to blame for this podcast, track down Damon through his website, DamonDay.com. Damon is an exceptional debt coach advisor and a trusted resource that helps save good people from bad debt.

Steve (00:18):
All right, we’re back with another quality podcast of debt-free dudes with Damon Day. My name’s Steve and Damon is here today to talk about today. We are talking about debt settlement, what it is, what it isn’t and whether or not it’s something you should consider if you’re falling behind on your bills. So everyone hears about debt settlement all the time, whether they got something in the mail or they saw something online. I don’t see that many TV commercials for debt settlement these days, but what exactly is debt settlement? Is it your creditors are just cutting your interest rates because you’re a good person.

Damon Day (00:59):
No debt settlement is actually negotiating the principal balances down and there’s a lot of misinformation out there. And there’s just so many different words that people use where people talk about, you know, debt consolidation or debt management. And oftentimes what they’re really referring to is debt settlement.

Speaker 2 (01:20):
They’ve just packaged it up in a little bit different bow.

Steve (01:24):
Okay. So, well, tell me exactly what debt settlement is. How does the process work? So I know it involves debt and it involves settlement, but what exactly is that? I, I don’t understand.

Damon Day (01:43):
Well, that’s, that’s a good question, Steve. So, and the reason I wanted to devote today’s show to debt settlement is because so many consumers out there just don’t understand what debt settlement is. And I don’t want to make today’s show you know, a, a, you know, picking on debt settlement companies, cause there’s definitely a time and a place for when debt settlement in a client situation is appropriate, but there’s just so much bad information out there that consumers are making uninformed decisions about, you know, high amounts of debt. And I wanted to really just actually for selfish reasons, take the time to really explain what it is and what it isn’t to save me time during my consultations. So if every, if every potential client could listen to this show, first, if they have questions about debt settlement, and then call me, I could spend more time on productive things rather than explaining what the salesperson said. That was actually incorrect.

Steve (02:49):
All right. Tell me if this sounds familiar or not. I’m a consumer. And all of a sudden I woke up one morning and I started panicking about my debt or worried about my, and I saw something online or I got something in the mail and I called a phone number and the person said to me,uwe have the perfect program. It’ll cut your debt in half. You’ll pay it off for a lot less money in interest and your credit will be fine afterwards. And the program there’s no upfront fee, it sounds magical, but what’s the reality there.

Damon Day (03:24):
And, you know, that’s, that’s pretty much verbatim a typical debt settlement pitch. They want to kind of throw out all the rosy parts and really kind of ignore how it really works. But so in a nutshell, debt settlement is nothing more than falling behind on your bills. Hopefully not on purpose and getting to a point where a creditor is willing to accept a haircut in order to get some kind of return on that account and close it out. And it’s not some kind of easy monthly payment plan, the way the, these debt settlement companies portray it to be where they come in and they say, Oh, you owe $50,000 in debt and you’re paying whatever it is, 1250 a month on minimum payments. I’ve got a great program for you. You hire us and you only have to pay whatever $850 a month for the next four years. And we’ve got great relationships with these creditors, yada yada yada. And as long as you pay the eight 50 a month in four years, you’re going to be debt free. And it doesn’t work that way. It’s not some nice, neat little payment plan, you know, packaged up to where you just have to pay eight 50 a month. Which of course sounds great because it’s $400 less than you were paying before or 500 or whatever it was. And so it’s a very easy sales pitch to make, but that’s not actually what’s happening.

Steve (04:45):
So it sounds like upfront that salespeople oftentimes give the impression that your creditors totally on board, they’re on the same page. They want to extend this offer, but that’s not the case, is it?

Damon Day (05:00):
No. And you know, I mean that settlements like, like jumping out of an airplane, right? I mean, you have a parachute in, and you’re pretty sure it’s going to open, but you’re not 100% sure it’s going to open and you know, not to scare anybody, but that’s the reality. I mean, when you, when you fall behind on a debt, you are breaching the agreement.

Steve (05:22):
So, so what, what are the consequences?

Damon Day (05:25):
Yeah, you can be sued. You can be sued. You can have a judgment, you can have your wages garnished depending on what state you’re in. I mean, it’s pretty serious stuff. And so it’s, it’s, it requires a lot more understanding before you jump into something with when the sales guys is simply saying, Oh, hire us. And it’s going to be great. And you just pay eight 50 a month. There’s a lot more to the story. And it’s important that consumers understand it and make educated decisions because there’s certainly times where negotiating debts makes good sense for a consumer, but there’s also times where negotiating debts makes absolutely no sense. And the problem is in most of those cases where it doesn’t make sense, you’ll find salespeople trying to sell it anyway.

Steve (06:13):
Now I can think of a couple of examples when it did not make sense, but can you give us an example of something that you’ve run into, Oh, I can,

Damon Day (06:20):
I can give you a million examples, but the one, the ones I always point to are the, the really obvious ones where, because a lot of my clients come to me, they find me after they’ve enrolled in various programs, or whether it’s a debt settlement company or credit counseling or whatever, and they get into these programs and then maybe they start doing some research after the fact because they, maybe they made an emotional decision early and they just wanted the stress and the fear to go away. And the old whole idea of having this company, supposedly take away that that stress and fear was a good idea. And then they started doing some more research and realizing, Hey, wait a minute, maybe this wasn’t such the right decision. Or maybe I didn’t quite understand what I was getting into. They stumbled across my website. And then, you know, we have a conversation, but oftentimes I see people in situations where you know, let’s say they’re, they’re on a fixed income, say they’re retired.

Damon Day (07:11):
They’re, you know, on social security, they’re judgment proof. They they’re in situations where creditors couldn’t really do much to them anyway, or, or bankruptcy just makes absolute sense for their situation. And, and I had a client one time. I remember this was years ago. She was a widow. She was on social security. She was making, I th I, I think it was 15, 1600 a month, something like that on social security. And she had 50, 60 grand in debt. It was a lot of debt. There’s no way she could ever pay it. I mean, you know, Dave, you could read all of Dave Ramsey’s books and she was not going to be able to pay off this debt in a traditional way. But she was completely judgment, improved. She had no assets. And yet when she called me, she was enrolled in this debt settlement program and they, she was paying, it was like $700 a month for four years for this debt settlement program.

Damon Day (08:06):
It was almost, it was literally half of her income. She was giving away to this debt that she literally could have filed a chapter seven on for $1,600 or whatever the fee would be for, you know, local attorney and, and been done with it you know, within a couple of months or if she didn’t want to do that, she literally could have just ignored it. I mean, there were literally would have been nothing the creditors could have done to her, but yet some sales person had convinced her that the only way to deal with this was to pay them 700, some odd dollars a month and live on half of her measly social security for four years. I mean, no sense

Steve (08:44):
There, there’s so much to unpack from what you just gave us in that example. So for example, it’s let me nip at it a little bit. When you talk to a debt settlement company, are you talking, I’m doing air quotes, what you would qualify as a financial advisor, or what is the capacity of the person that you were talking to?

Damon Day (09:05):
Well, you know, that, and that’s the irony of the whole deal. And that’s kinda how it w when I, when I started, you know, going off on my own and doing my consulting, this was like 20, some odd years ago. I recognize this fact. And to me, it just, it was so blatantly obvious, but you have consumers that are in debt, right? They’re scared. Maybe they have creditors calling them. They don’t know what to do. They see stuff on TV, the ads online, they’re scared of bankruptcy. They see things like that. Consolidation and credit counseling and debt settlement. And there, they’re calling these companies right for advice. I mean, that’s what they’re calling for. They need advice. They don’t know what to do, and they’re trying to do their due diligence and figure it out. And you know, how do I handle this 50 grand that I can’t afford?

Damon Day (09:47):
And the problem is you’re you’re as a consumer, you’re making these calls looking for advice, looking for information. But what you’re getting are just straight up sales pitches for the most part about why you should hire that company to solve whatever the problem is. And the problem is everybody that calls in is getting pretty much that same pitch or presentation, regardless of what their circumstances are. And then you think, okay, well, that was some information. Let me call this other company. And then let me call this other company. Let me call all these companies. So I could do my research, right? But all you’re getting is just different versions of the same sales pitch, where one guy’s trying to sell against the other guy, Oh, this guy has got an 850 payment. I got an $800 payment. This is a thousand dollar commission for me or whatever it is. And so you step back, you’ve got all this information swirling in your head. Most of it isn’t even correct. And then the ultimate irony is you, the consumer are then left trying to decide what you should do. And, and, and, and their job is just to sell it to you. But the purpose of that phone call was to have them help you figure out what to do. And that’s absolutely not what they’re doing.

Steve (11:04):
Now. You mentioned the word commission. So the person that you’re talking to is actually motivated to close the sale to sign you up as a client, as fast as possible. So they can earn money, right? Because they’re getting paid a certain amount when they make that sale. So their motivation is not to provide the best advice. Is it?

Damon Day (11:29):
Well, that’s correct. And you know, I, I don’t want to paint everybody with a broad brush because I know there are good people out there. And again, this, the point of this podcast was not to disparage settlement companies or credit counselors, but the point of this podcast was to help educate consumers. So they understand that the conversation they’re having is not financial advice. And for the most part, the person on the other end of that phone for calling a debt settlement company, they’re not, they’re looking at your situation and trying to help you decide if maybe you should call a bankruptcy attorney, or maybe you should really look at doing something else, or maybe this is something really you can do on your own with a few phone calls or whatever it is their job is. Hey, lead comes in, you know, company pays for this lead because as a consumer, that’s what you are.

Damon Day (12:14):
You’re a lead when you, when you fill out a form online or whatever. And their job, as Steve mentioned, is to make that sale, bring revenue into the company. Their job is not to help you figure out if you should buy the product that, I mean, that would be like, you know, going onto a car lot. And the guy runs out and greets you with a big smile. And you say, Hey, I’m really confused. I like my car. I’m just not sure about it. This one was really shiny. Do you think it’s a good time to buy a new car?

Steve (12:45):
Yeah. That’s the example I was going to use, but you’re absolutely right. I mean, if he rolled into the Ford dealership, they’re not going to say you need to go to Toyota. Right. They’re they’re going to close the deal on the Ford.

Damon Day (12:59):
Yeah, exactly. So, and again, that’s not necessarily a bad thing if, you know, as a consumer, what you’re getting on the other end of the phone. So the important thing is, before you start calling all these companies have a plan, have, have an understanding of what it is that company is probably going to do. And I know, I know I can say that you know, but consumers are going well, how am I supposed to do that? I mean, where do I go to get the information? And that’s the shameless plug, because the answer is, call me, I’ll tell you, I will tell you what the salesman said. And then we can look at the contract and we can decide that what he say, or she say match what’s written on the paper. Usually it doesn’t

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Steve (13:42):
Let’s compare the difference. So when someone talks to someone like you, a financial advisor, a debt coach, you’re looking at their overall situation where they were, where they are today, where they want to go, as opposed to just trying to close the sale on a settlement. Right?

Damon Day (14:01):
Yeah. And don’t get me wrong. I’m trying to close the sale too. I mean, every everybody’s trying to close a sale, that’s the way business works. Right? The difference is what I sell is advice, right? I’m selling, Hey, look, you can hire me. You can talk to me. And we’re gonna sit down, go over your whole situation, talk about pros and cons of everything. And my job is to educate the client so they can make a smart, intelligent decision. So, so I do the same thing. Somebody calls me, I’m closing the sale too. I’m closing them on the idea that it, that they should hire me to help them figure out what to do and pay me a flat fee to be on their side and, and figure this out. So everybody is making sales. So let’s not, let’s not try to pretend like, Oh, I’m different, right? And Oh, I don’t, I don’t need your money. I’m just out of here. It would be great. If I could be out here for free doing it. I I’ve not yet reached that level of success where I can just do it all day long for free. I’ve got kids too, but you just got to understand what it is. The person on the other end of the line is trying to close you and make sure that, that close you on and make sure that that’s what you need.

Steve (15:08):
All right. So let’s talk about the Holy Trinity of debt relief, bankruptcy, debt, settlement, credit counseling. If you call one of those agencies or outfits, you’re going to be pitched their solution as a magical solution, but one size does not fit all. Does it?

Damon Day (15:27):
Oh, and I’ve got a kind of a standard thing I’ve developed over the years where I’m always telling my clients, it’s like, look, okay. So you go to a bankruptcy attorney. They’re going to tell you, debt settlement is a scam. Credit counseling is too expensive, right? You call the debt settlement company. They’re going to say, Oh, bankruptcy is the most horrible thing ever. It’s going to ruin your life for 10 years. Your wife’s going to leave you. Your dog’s going to leave you. Your kids are gonna hate you, right? You can’t can’t do the bankruptcy and credit counseling is just way too expensive. You need to hire us instead. And then you go talk to a credit counseling company, and they’re going to say the same stuff about bankruptcy and why it’s horrible, and it should be avoided at all costs. And then they’ll also say that debt settlement is a scam and credit counseling is really the only legitimate way to get out of the debt. So they’re all just kind of selling against each other. That’s all it is.

Steve (16:12):
You go to a settlement company website. I was answering a reader question yesterday, and I saw this. It’s very typical. You go to the site and inevitably there is a page about compare options and the option and on this option page, a debt settlement was labeled

Damon Day (16:34):
Steve, Steve, I’ve heard this one before. So on the compare page, this is where they legitimately compare all the different options. So you can make an informed decision as a consumer. Right.

Steve (16:45):
Right. And debt settlement is labeled top choice.

Steve (16:52):
And bankruptcy said it would ruin your credit for a long time. It was very difficult to qualify for. And it took three to six months. Your credit would be ruined forever. How does a consumer make an informed decision or even learn what the truth is when they read information like that? Because would you say that was a factual statement? Well,

Damon Day (17:17):
Obviously not. Plus how could they make that as a blanket statement? How could bankruptcy be the worst option for every single situation? Yeah, it can’t, but so the, just the fact that they have a page that puts bankruptcy as the worst option for everybody that looks at the page means it is.

Steve (17:37):
Well, you know, the other thing you see often times is bankruptcy is the last resort. Yeah. Which I don’t understand what that means. You know, once you’ve everything else and it hasn’t worked, then you turn to bankruptcy. Or I think the key is finding the right tool for the right situation for the consumer to get the right result.

Damon Day (18:02):
Yeah. And, you know, and I tell my clients all the time, I filed personal bankruptcy in 2012 and when I was going through it I, you know, I did not want to file bankruptcy because, you know, I was still doing this. I mean, I’ve been helping people with debt since like no 2002, some, some time back then. So my whole thought process was I in, of course this was when the housing market crashed and I lost my shirt. When, you know, this was, I was at a house in California. And I mean, it was a, it was a bad scene back in 2008 is kind of when it all started to go down and, you know, 2008, nine, 10, 11, it became very apparent that I’m needing to file a bankruptcy.

Steve (18:43):
Let me just, let me, let me interject for a second because I’ve known you since, before you did that. I just can constantly re remember saying, Damon, you have to file Damon. You have to file Damon. You have to file. You need a fresh start. You need a fresh start and you were extremely resistant as is everybody until you reached it until you reached the point, you were going to tell us

Damon Day (19:07):
Yeah, I, I was, and, you know, in my situation, you know, it was, I just charged close to $400,000. So we’re not talking about us as a small little amount of debt here. But my, my thinking, cause, you know, I had a strategy and a plan, but my thinking was, well, if I can earn enough money, earn my way out of this and negotiate the debts down, then that’s fine. But I mean, it got to the point where it was just obvious. I would have to earn such an obscene amount of money in a short amount of time that the BK just made more sense. But the reason in my head that I was so resistant was not so much from a personal standpoint or personal credit or anything like that, it was more from the standpoint of I’m a financial consultant.

Damon Day (19:47):
How could I possibly file for bankruptcy? My professional life would be over in ruined and I would have to go flip burgers or something else because who’s going to listen to a financial consultant. That’s filed bankruptcy. So that was what was in my head. And of course up to that point, I had not ever filed personal bankruptcy before. So even, even though this was what I did for a living, I still didn’t have a solid understanding of what it was actually like the process to go through it and then come out the other side until I actually did it. And when I pulled the trigger and I did it and I wiped out the debt and my income just took off after that things went really, really great because before I filed, I was kind of mentally keeping my income down. I don’t not on purpose. I think it was just a subconscious thing because I didn’t want to price myself out of a chapter 13 and I’m getting too much into the weeds here. But

Steve (20:41):
No, but you, you know, you were also suffering from what a lot of people do, which is you were down and out, you know, it’s, it’s hard to succeed when you’re feeling desperate rather than inspired. So that’s, that’s typical.

Damon Day (20:56):
Yeah. But the funny thing is once I filed, I had this freedom, the debt was gone. I could focus on the business and go to the business. And you know, the funny thing is that was 2012. So the bankruptcy is still on my credit. And in 2021, right? If you bought my credit, there’s a bankruptcy, but you wouldn’t know it. Nobody would know it. I mean, I’ve gotten more credit cards than I can count. I mean, heck I have an American express platinum card. I’ve had that for years. You know, we drive nice cars, you know, we can finance them. I live in a nice house and people go, wait, wait, wait your, your life should be horrible for 10 years because you file bankruptcy. And the reality was no, actually I got a brand new freaking credit card from capital one. The day I got my bankruptcy discharge.

Damon Day (21:43):
It was literally in the mailbox the same day, because after I filed Capitol one solicited me, I go, Oh, we’ve got this fresh start car. We see you just filed bankruptcy. Here you go. Here’s a new card. Now, granted, it was like a fresh start card. It was like a $500 limit or something like that. But it was no interest for a year. It was like, Hey, we know you need to kind of start to rebuild. So here you go. So I applied and I got it and it was just coincidence that it literally showed up in the mailbox the same day I got my discharge papers, but it’s like, wait a minute. I thought I’m supposed to be this credit pariah for 10 years. And all of a sudden I got these new cards, you know, within what is it, two years after a BK, you can qualify for FHA financing on a mortgage, again, our rates.

Damon Day (22:27):
Yeah. And I’m not gonna lie. It wasn’t like as soon as I filed, everybody was throwing, you know, loans at me or anything. Cause there’s a lot of shady stuff going on that you got 25% car loans and stuff like that. The first couple of years you got to watch out for. But once you got past those first two or three years, you get, you know, and you kept your nose clean. You didn’t have, you know, reoccurring problems. You can easily build your credit up to in many cases better than it was before you filed. Because before you filed, you owed all this money to everybody and nobody’s going to loan you anything.

Steve (22:57):
So let’s go back to debt settlement. I am a debt settlement person, and you’re talking to me and I’m telling you, it’s going to ruin bankruptcy is going to ruin your credit forever. It’s the worst thing that you can do. It’s last resort. You should never do that. And I never tell you that there might be any credit report or credit score implications from bankruptcy, but that’s not true. There are implications. Aren’t there? You mean from debt settlement? Yes. I’m sorry. From debt settlement. Yes.

Damon Day (23:22):
Yeah. And, and, and, and again, I’m not saying bankruptcy is always the right answer and that settlement’s never the re the answer is again, the point is, it depends on your specific circumstances where you’re at in your life and what you’re trying to accomplish. But that’s the point is it’s always a one size fits all with these debt relief companies. But yes, to answer your question, Steve, there are big implications to your credit report from debt settlement, because the way it works, literally you fall behind on your cards. Whether you hire a company or you don’t hire a company, you’re falling behind. Payments are not getting made. You’re getting 30 day, late, 60 day, 90 day late. Some of these are going to charge off. If you don’t settle before that, these things are going to stay on your credit report for several years, once you settle the debt, that’s going to help because you’re not going to owe the money.

Damon Day (24:06):
But while you’re going through the process, especially if they’ve got you on a three, four, sometimes five-year payment plan, I’m doing air quotes on the payment plan, because there is a real payment plan. You know, your credit is going to be in the crapper for several years. So it’s not like bankruptcy ruins your credit longer than debt settlement can. So you’ve got to weigh the pros and cons of you know, that settlement is going to cost you a lot more money than a chapter seven bankruptcy will. And they’re both going to run your credit for a couple of years. So you, you gotta be aware of that.

Steve (24:39):
So even if you file even if you, you go the debt settlement route a, if you’ve defaulted fallen behind on your accounts, that can be reported up to seven years on your credit report and the amount of debt that was forgiven, that they wiped off that ends up being reported as a bad debt on your credit report. So, I mean, there are things to consider along with bankruptcy.

Damon Day (25:04):
Yeah. And the other thing you have to look at, and this is the favorite thing, my favorite thing, that salespeople always accidentally miss it in some cases, in many cases, depending on your situation, again, everything you noticing a theme, Steve, everything depends on your situation. You can’t have a generic solution. It’s got to be specific to your problem, but for people that have a positive net worth, which means if you add up all your assets and you add all your liabilities, you have a positive number. Congratulations, you’re winning at the game of life, but bad news, you could potentially have taxes due on any debt that was forgiven. Salespeople tend to overlook that mainly because they honestly, I think because they don’t either know it or understand it cause their job is to sell something, not to actually execute the strategy and then help the client figure it out at the end. Like, Oh, congratulations, your that’s all settled. Here’s 40 grand that you owe the IRS. Well, wait a minute. Nobody told me about that. It’s like, well, that’s not our job. Call a CPA. You know, there you go. We’re done. We got paid goodbye.

Steve (26:10):
Give us an example. When debt settlement is a smart thing in a specific situation,

Damon Day (26:16):
So that settlement can be a good strategy. If a chapter seven bankruptcy would be what I call unpalatable for the client. And I always have a problem with my tongue when I say palatable, is that how I want to say it? I sometimes call it a non-starter if I’m feeling particularly tongue tied during that consult. And like, we have to look because the way I do consults with clients is I do it by of elimination, right? No matter what we do, if you’re coming to me with a problem and we’ve got debt, there’s going to be some sacrifice required, no matter what, whether we’re going full blown, Dave Ramsey style, you know, living debt-free and, and know eating beans and rice and doing that role or, you know, debt, snowball, or credit counseling or debt settlement, or, or even bankruptcy, no matter what we do is going to require some level of sacrifice, then you’re used to, right?

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Damon Day (27:11):
Because most of the time people have been living beyond their means. And not every time, sometimes there’s situations that come up and, you know, scams or medical issues or something like that to, to get into the debt. But whatever we do is going to involve some kind of a change, right? Whether it’s changing the expenses or whatever it is, there’s going to be some sacrifice. So, and, and, and what is the right sacrifice is up to the client. It’s not up to me. I’m not the guy that can say, this is the wrong sacrifice to make. And this is the right sacrifice because it’s the client’s money. It’s their credit, it’s their life. So it’s their decision. So my job is to kind of go through all those options and say, okay, look for your specific situation. If we look at bankruptcy, your life’s going to look like this.

Damon Day (27:50):
You know, this is how it’s going to kind of play out. We can meet with a bankruptcy attorney, get the facts, looking at chapter seven or looking at chapter 13. If we go the settlement route, this is kind of how I think you should do that. And this is what’s going to be the positives of that and the negatives of that. And for your situation, this is how much it’s going to cost you. And this is how long it’s going to take, yada, yada, yada. And we just got to go through all that stuff. So the client can then take a step back and say, okay, none of that sounds awesome, but what sounds the least not awesome. Right?

Damon Day (28:22):
However you want to say that

Damon Day (28:23):
What’s, what’s the best bad situation got to be fun. Right? So, so for somebody like to answer your question, when would settlement be a great option? Settlement would be a great option when there’s a, non-starter in a chapter seven bankruptcy, right? Where maybe they live in a state where they don’t, they own a home. And they live in a state where the equity would not be protected and a chapter seven would necessitate them selling their house and they don’t want to sell their house. Right? It’s their house. It’s not my house. And so to them, that would be a non-starter to somebody else. They might say, I hate this house. I’ve been trying to get out of it forever. And if, if I lose the house in a BK, that could be the best thing ever for that client. That’s not a nonstarter became might make more sense. So, so really whenever a, a bankruptcy is just not going to be a good option or not palatable to the client, and they’re willing to pay more money to get out of the debt, right? Because bankruptcy chapter seven is always going to be the cheapest from a, from a, how much is it going to cost me standpoint?

Steve (29:25):
So to, to let people know it’s going to be $2,000 or less for chapter 7 bankruptcy, and your debt is going to be discharged. Tax-Free within 90 to 120 days. It’s a very quick inexpensive process.

Damon Day (29:38):
Yeah. So you got to, I know you got to just, you got to look at it, you gotta make, do I qualify? You know, cause a lot of people say I haven’t met with the bankruptcy attorney because I’m afraid I don’t want to lose my house or I don’t want this to happen or whatever they read on the debt settlement website that scared them away from bankruptcy. But the thing is we, you know, I have my client, if, if bankruptcy looks like a viable option, I’ll look at it. And if it looks like it’s viable, it doesn’t hurt to meet with the attorney and gather some information.

Steve (30:04):
Right, right. You’re encouraging them to go and learn. They don’t have to commit the file. Just be informed.

Damon Day (30:11):
Yeah. And I always tell my clients, look, you know, and I’ll hold your hand. I mean, that’s what I’m here for. You know? Well, I’ll contact the attorney. If I, if I already know them, then I’ll make the introduction. If I don’t, I’ll help you find somebody explain to the attorney, Hey, here’s what the client’s looking for. We’ve got these specific questions and they want to, well, it used to be going for a consult, but these days almost everything’s done over the phone. You just do a phone consult with the attorney. I find it’s a lot less scary for most people. If they know they’ve got someone like me, that’s kind of made that connection. And then they know they’re going to get the information and then circle back with me and say, and then a Damon, this is what the attorney said.

Steve (30:45):
Yeah. Let me talk it through with you. Yeah,

Damon Day (30:47):
Yeah, exactly. It’s that way. They’re not trying to figure this out on their own. You know, that way they can have somebody that knows this stuff that can say, Hmm. And I’ve had cases like that where they’d come, client would come back and they would, you know, all the attorneys said, chapter 7, wasn’t going to work and we have to do a 13 and it’s going to be this and this. And I would just go, Hm, that again, I don’t want a Monday morning quarterback because I’m not a bankruptcy attorney, but it wouldn’t hurt to talk to a different bankruptcy attorney just to see right. You get a second opinion. There’s also bad bankruptcy attorneys out there that not all great are great, but some aren’t

Steve (31:22):
One of the things you hear is the reason I want to go debt, settlement route is because I want to honor the promise to repay my creditors. I don’t want to file bankruptcy and walk away from my debt. But isn’t the reality that in debt settlement, you’re not repaying them fully anyway. And then when you say to somebody, you know, you can still repay your creditors. Even if you file bankruptcy, the general reaction I hear is why would I do that?

Damon Day (31:51):
And my response is, I don’t know, you’re the one that said you wanted to do it. Yeah. So I mean, but again, the main thing is there, there are reasons not to file BK and look at settlement or look at credit counseling, look at other apps because sometimes a non-starter is simply the client saying, I absolutely don’t want to file bankruptcy. I don’t feel comfortable with it. I don’t want to do it. And again, it’s not for me to say, well, that’s stupid or I don’t agree with that because it’s not my life. Right? It’s it’s the client’s life. And I have had situations where the client would prefer to payback what they can afford rather than do a BK or a BK would be more all encompassing versus, you know, selective debt negotiation, which is what they prefer. So there are lots of situations where the client might prefer a credit counseling approach, a Dave Ramsey approach or settlement over a BK, but the client needs to figure that out. And the only way they can figure that out is if they have all the options, all the information in front of them and make that decision not based on a misunderstanding of what one strategy would be versus another. And that’s what they get out there in the marketplace is a big misunderstanding of how it all works.

Steve (33:00):
Under the heading of full information. One thing that people are never told I find is that if you go and talk to a bankruptcy attorney, you decide you’re going to file you file a chapter seven, a which the vast majority of people do, and your debt is discharged. A hundred percent of your debt is discharged. That’s included in the chapter seven, but Damon not a hundred percent of debt is discharged in a debt settlement plan. Is it because people don’t always finish those plans? They don’t complete them.

Damon Day (33:31):
You know, I sit in here as you’re talking, I was realizing this was supposed to be about how did debt settlement podcast turn into bankruptcy podcast?

Steve (33:40):
I think the, I think the reason is because the only way you can talk about settlement is to compare it

Damon Day (33:45):
That, yeah, that that’s a good point again, process of elimination, but it’s this funny. I’m like, everything we’re talking about is bankruptcy. This is supposed to be an explanation of debt settlement. And we’re talking about why you should look at bankruptcy too, which is still good information, but the next podcast will be all about debt settlement, how it works and how it doesn’t put the title of this podcast. Bankruptcy versus settling. We’ll have to go back and redo the intro on this one. Yeah.

Steve (34:15):
Well, we’re kind of running out of time, but one of the differences I would like to point out is that when you call a debt settlement company they’re starting with the solution first. And when somebody talks to you, you’re starting with the destination first, where do they want to wind up and then figure out what’s the best path to get there. That’s a, that’s a huge difference.

Damon Day (34:39):
Well, it’s, it’s a major difference. I mean, you call it a debt settlement company or credit counseling company, or, you know, a bankruptcy. It doesn’t matter. They’re gonna talk to you. They’re gonna do a free consult, right? It’s going to be 30 minutes, 45 minutes before that consults over, they’ve got a plan already. They don’t know anything about you except maybe, Hey, you know, what do you make a month? How much debt do you have? How much did your mortgage, you know, some cursory information and here’s your plan? You know, here’s how we’re going to get rid of your hundred thousand dollars problem off a 20, 30 minute phone call. By contrast. When, when I bring on a client, my focus, most clients, they’re our client for a month or two, right? We’re going to take the time to really go through everything and figure out everything that’s going on in their life.

Damon Day (35:21):
Look at all these different strategies. And then they can make the same decision that these companies want them to make. After 30 minutes, I typically give it up to two months of back and forth stuff. Now it doesn’t mean we’re having an hour long consult every single day for two months. It’s not going to take me two months. Once I’m looking at the client’s financials, I’ve been doing this almost 20 years, I don’t need two months to figure out what they need to do. I I’m usually going to know it on that first call. Once I’m looking at all the finances and I’ve gotten to know a little bit more about the client and what’s important to them, but the time is for the client to have you know, the time to, to, to research it to, to, you know, to dwell on it, to sleep on it, whatever they need so they can, you know, make sure they’re not feeling rushed into a very important decision. So that’s the big difference. If you have a, a predetermined solution in mind, you can do a pitch and, and shove a contract in front of somebody in 30 minutes. If you flip it around and say, okay, let’s design a solution around your actual problem. Well, that takes longer. That takes an understanding of the actual problem and an understanding of the client. The sales guy doesn’t have time to do that and he doesn’t get paid to do that because heaven forbid the right solution is not something he sells

Steve (36:35):
Well, you and I talk at least daily, at least about a different consumer situation. And just yesterday, we were talking about somebody that has a situation that looks like a very clear solution is needed, but there are no, no way are they emotionally or mentally ready to make those hard choices?

Damon Day (36:55):
Yeah. And that, you know, that factors in too you know, I often say I’m kinda part Dave Ramsey part Dr. Phil, because, you know, what, what is it that you say all the time about you know, debt and, you know, money problem wrapped up in emotion, or Steve says it better.

Steve (37:12):
Debt is just a math problem wrapped in emotion.

Damon Day (37:16):
Yeah. And, and that’s, you know, and, and that’s something where you can’t just say, Oh, you know, let me give you a label. You’re going to fix this with debt settlement because you know, the, the other thing is, there’s a, a million, when you say debt settlement. Yeah. There’s the way the debt settlement companies do it. And it seems like a nice, neat little package deal and you pay the money or whatever, but there’s actually a million different ways that kind of a negotiation strategy can be implemented. Right? And, and, and, and if you take it from an individual standpoint, it looks different for every single person. So even if you have, you can have 10 people that say, Oh, debt negotiation or debt settlement is the right strategy for these 10 people. But the actual strategy could be completely different for all 10 of them just based on their, their situation. It’s going to be different, but you’ll hire some company and has a one size fits all program. You’re going to get shoved into it. Even if that’s not the most optimal way to solve your problem, their job is not to solve it. Optimally, their job is just to collect money and then maybe get it done and that’s, but that’s what you get.

Steve (38:19):
That settlement comes in different flavors, too. At least it comes under different names. You’ve got debt settlement, debt negotiations, debt intervention, debt validation. Maybe it might be called a bunch of different things. We just want people to ask questions and not feel compelled that they have to make a decision on that initial phone call. And also one more thing is just realize that if you got something in the mail or somebody reached out and called you, they are trying to make a sale. They are not calling to provide you with the best financial advice such as consider that.

Speaker 4 (38:57):
Well, Damon we’ve come to the end of another podcast. You’ve been listening to Damon Day,

Speaker 3 (39:03):
Who is at the website, DamonDay.com. And you should feel free to reach out and talk to him.




About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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