I can dream, can’t I? If I could get a wish for debtors it would be to wave a wand and implement this perfect debt assistance or debt relief program.
Here is what the program would look like.
A Sliding Scale Nominal Charge – Consumers would have to pay a sliding scale setup fee. It is too expensive to start a lot of work on behalf of clients that never follow through. So a new client would pay a sliding scale setup fee upfront to cover the initial cost of getting their plan established and show they are committed to moving ahead.
Copies of Bills – Debtors would provide copies of their statements quickly. Ideally potential clients needing help would be getting their mail via something like Earth Class Mail so they could instantly forward copies of their bills to the debt adviser. That would be wonderful! The delay in making copies and forwarding them only delays the process and creates more busy work.
Allow the Debt Adviser to Pull a Consolidated Credit Report – Allow the debt management company to pull a consolidated credit report at a reduced charge to make sure they know about all debts.
A Real Spending Plan – The debt management company would review the client’s financial situation and put together a suggested debt repayment plan that is affordable, reasonable and sustainable through total repayment. None of this cut out everything fun stuff, leave some room for a movie or occasional night out. Also, be sure to include some money going into a savings account every month for emergencies and unexpected expenses. The spending plan will need to be able to be adjusted and payments possibly reduced for living expense increases like adjustable mortgage payments, increasing health insurance, etc.
Fair Payments to Creditors – Payments to unsecured creditors included in the repayment plan would be based on the percentage of debt that the creditor is responsible for. For example, if the client owes Sears 13% of their total debt then Sears would get 13% of debt repayment dollars available, as determined by the debt advisor.
Credit Counselors Actually Dictate – Unlike the BS lie that floats around now that credit counseling groups negotiate a debt management plan, which they don’t, in the perfect plan, they would tell the creditor what they will get, not what they want. The debt adviser would contact the unsecured creditors and notify them what the amount they will receive under this debt management plan.
The Debt Management Group Has Some Real Authority – In the perfect plan the credit counselor would be required to certify that the repayment plan proposed is the consumers best effort. Creditors would be required to accept the reduced payment plan as put forward by the debt counselor.
Creditors Would Eliminate All Interest and Fees – During the repayment period, all interest and fees would be waived as long as the client is making their payments as agreed. An allowance should be made for an unusual situation that leads to a a payment missed, but a creditor would not be able to go back and retro charge a client interest for the period which they were making payments.
Creditors Acknowledge the Plan and are Bound to It – Creditors would be required to confirm the balances due when the client enters the plan and then the creditor will be bound to that balance even if they sell the account to another creditor. This will allow the client and debt management company to calculate the exact date the consumer will be out of debt if they make the payments as agreed. This will give everyone a date to mark down and look forward to.
All Collection Activity Ceases – Once the client makes their first repayment under the plan, and continues regular payments, all collection activity will cease by the creditors.
Creditors Can Pursue Clients Under Certain Situations – If it is determined that the client lied about their income or expenses or if they stop making monthly payments, the creditors can resume all collection activity.
Client Can Make Payments Or Hire A Payment Processor – Once the plan is negotiated and put in place by the debt management company then the client can elect to either make the payments themselves to the creditors or to hire a payment processor to whom they send one payment and the payment processor distributes it for the client. This is service that some consumers may desire.
Credit Counselors Can Be For-Profit – It is time to end the sham that only non-profit groups provide better service to consumers. There needs to be a free market to allow companies to compete in order to drive up the level of service and capabilities of leading companies. There is nothing in a debt management plan that requires the need for a charity. Allow for-profit companies to enter this market and attract bright, smart and talented people to create services for consumers.
Require Credit Counseling Companies to be Bonded and Licensed – If a credit counseling group is going to be handling consumer money then they need to either have an adequate employee loss or theft policy, be reasonably bonded and be licensed by the federal government.
Make Laws Governing Debt Management Companies Federal – Make debt management regulations federal instead of state based. There are just too many states to deal with. Consumers can be protected with a federal envelope rather than 50 different rules and regulations.
Paid Creditor Intervention – If a consumer is having a dispute or difficulty during their repayment plan they could hire a debt advisor to intervene on their behalf to try to remedy the situation. The debt adviser is a third-party with professional experience in handling these situations.
Allow The Debt Company to Charge For Credit Report Assistance – Allow the credit counseling group to be hired by the consumer to help correct inaccurate or false information that appears on the consumer credit report. Some people never do this themselves. This does not cover the removal of any accurate but negative information.
No Lingering Tax Liability– Unlike now, where any forgiven debt is taxed by the IRS as if it was earned as income, except for debt discharged in bankruptcy, the IRS needs to not bill consumers for the that amount owed that creditors may write off under this plan. Getting a tax bill for debt you already can’t pay is a strong disincentive for consumers to even bother with repayment.
Fixed Repayment Period – Consumers would not have to repay more than four years under this plan. The often suggested five year date is just a bit too long to provide substantial incentive for debtors to sacrifice years of their lives and gamble on the possibility of successfully completing the program. The shorter the period, the more likely that a consumer will embark on the journey and successfully complete it.