Debt Relief Industry

Wow. HomeStreet Bank and American Financial Solutions Don’t Seem to Understand Debt Settlement, At All

A reader brought my attention to a press release sent out by HomeStree Bank in Hawaii and the nonprofit credit counseling group American Financial Solutions. One thing is clear after I read the release is either those two companies don’t understand how debt settlement works at all or the person that wrote the press release is not all that informed.

The press release says:

Dean KiloDavis, Loan Officer for HomeStreet Bank, says having a settlement on a credit report can result in being turned down for a loan. “A settlement doesn’t instill confidence that you will repay your debt,” says KiloDavis. – Source

I wonder how the average banker would view the same consumer who was enrolled in a credit counseling program. Isn’t it all just really determined by credit scores these days. It is really. So it’s not the fact someone was in a debt settlement program that is the impact. It’s the impact on the credit score from the collections activity and maybe the charge off.

HomeStreet Bank must be one of the unusual lenders these days that makes its lending decisions arbitrarily based on what the credit report says rather than the credit score.

He explains it this way, “Imagine I ask you for a loan to be paid back in two weeks. Then you find out from a mutual friend they loaned me money. You are informed that I didn’t pay them back when I said I would, and I paid back less than I borrowed. Would this knowledge make you comfortable giving me the loan in the amount I asked for?”

So how is that different than the credit counseling approach where people get their accounts closed by the creditor and interest rates reduced. Wouldn’t the lender also be likely to say “Well they said they’d pay the interest we sold them but then they went and paid less.”

The press release says:

In addition to the damage to a credit report and the ability to borrow money, any type of debt forgiveness or settlement (except bankruptcy) may also result in higher taxable income. The Internal Revenue Service considers all or most settled debt or cancelled debt as taxable income, depending on the consumer’s asset-to-liability ratio (do they owe more than their assets are worth) at the time the debt was forgiven or settled. The individual will receive a 1099-C tax form from the creditor if $600 or more is forgiven. Also, while rare, creditors may sell the unpaid portion of the debt to a collection agency. The bottom line is that people may still be responsible for repaying part of the forgiven debt.

What HomeStreet Bank and American Financial Solutions fail to mention in their explanation is the IRS has a form and process to deal with this. IRS Form 982 eliminates the tax liability for all insolvent debtors and the tax liability up to the point where the consumer would become solvent.

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I wish the issues with the release ended there, but they don’t.

The companies then recommend that consumers negotiate with the creditors directly to settle their debts and that the creditor, “Request that the creditor provide them with a 1099 – C form rather than sending the remaining debt to a collection agency.” Ironically they also don’t recommend that consumers should not deal with American Financial Solutions or other credit counseling groups and contact creditors directly to workout debt management plans.

Consumers do not need to pay huge sums of money to someone to settle their debts. There are debt coaches out there like ZipDebt and Consumer Recovery Network that will educate and coach consumers through the process and on how to make sure the debt is not sold to another party.

In closing the spokesperson for HomeStreet Bank seems to contradict himself.

“The information on your credit report determines your ability to qualify for many things from car insurance, getting a job, and of course buying or refinancing a home,” cautions KiloDavis, “but there are resources out there, like American Financial Solutions, who can get you back on track. Bad credit is not a death sentence. You can fix it, but it’ll take some elbow work. Making that first call to ask for help can be scary, but when some of that weight starts lifting off your shoulders, you’ll be glad you did it.”

So is he saying American Financial Solutions can repair or improve your credit? If so them American Financial Solutions would seem to run into potential trouble with the Credit Repair Organizations Act as other credit counseling groups have.

If not, then he seems to be saying that any impact you take from debt settlement is easy to fix.

The press release even says, “Credit counseling agency American Financial Solutions provides the information needed to make the right decision about settling debt.” I wonder if that means their approach is that there is not an appropriate time and place for debt settlement? Which there is of course.

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Is American Financial Solutions providing consumers with a fair and balanced approach to all major debt solutions in order to allow the consumer to make an informed decision?

They also say, “But there are real ramifications to your credit and credit score when using debt settlements to manage debt.” But don’t seem to say that a credit counseling program that closes your accounts with the creditors can impact your credit score as well.

So what was the goal they were trying to achieve with this press release? You’ll find the entire press release here.


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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.


  • I disagree whole-heartedly with this article. The information is extremely bias. Also, you use American Financial Solutions and American Financial Services interchangably. Those are two completely different organizations with two entirely different business models so which are you referring? After reviewing many of your articles, I feel again that the information is selective and presented in a way to get people to agree with you. Everyone’s situation is different and best advice should always be “DO YOUR RESEARCH AND IF IT SOUNDS TOO GOOD TO BE TRUE IT PROBABLY IS.”   

    • Thanks for the typo alert. It should have been American Financial Solutions in the article.

      What part of the article did you disagree with, your comments are very nonspecific.

      You will find that my advice is rooted in encouraging people to research their debt relief options. I even make this information available to them.

      Let’s start with the basics.

      I’d suggest you first read How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. They will give you a great overview of what we need to deal with to get you moving in the right direction.

      Then use the free How to Get Out of Debt Calculator to review your options.

      • I would like to see the press release in its entirety versus the excerpts maybe taken out of context to support your case. Also, providing people assistance with debt doesn’t require you to “bash” other organizations. Typically you don’t place your bullseye on a company also out there to provide financial assistance and education to consumers.

        • The entire press release is available via the source link in the article.

          You did not answer my question about what part of the post you disagreed with.

          It is ironic that you seem to feel I did not provide readers with a fair and balanced approach but that was the very focus of the article about the press release. My question was, “Is American Financial Services providing consumers with a fair and balanced approach to all major debt solutions in order to allow the consumer to make an informed decision?”

          • Again which company is it?? — The parts that I disagree with are if a loan officer is stating settlements hurt your future lending, I’m going to believe the loan officer. Qualifying for lending is based of off Capacity to pay, Collateral of what you are purchasing, and Character of the borrower. Can’t blame a creditor for not wanting to lend to someone with “settled less then full balance” plastered all over their credit report.

            Debt Management is designed to keep your current and creditors provide lower interest – I would rather have a minor credit hit for a credit card being closed and be granted a smaller interest rate so I can pay it in full and have my credit state as such. No worrying about tax requirements if its PIF. (Not all qualify to for 1099-C exemptions – only minority)

            I commend organizations for NOT working with settlements — I hope they would advise of the negatives of settlements. If people want to settle, risk being sued, and fight the IRS they are more than welcome to.  IMO I relate paying off debt to losing weight, if you put in the time and effort you will see results you are looking for. Shortcuts in either arena typically do not get you to where you really want to be. People don’t get into debt quickly so people have to realize that you most likely aren’t going to get out of debt quickly.

            I would hope that if you are here to provide unbias advice of all options, I would encourage you to research debt management programs further and understand that it is a great option with NO long term negative credit affects (only closing the accounts) and no IRS issues and no “settled” notations on your credit. 

          • The article says American Financial Solutions.

            I’m kind of intimately familiar with credit counseling. I founded and ran a credit counseling agency.

            Your statements are rather broad and incomplete. As far as historical evidence, a debt management plan has a low rate of success.

            If the criteria for determination is simply credit impact and repayment then contacting your creditors about internal programs may give you a better solution than credit counseling alone. For example, right now Bank of America is offering a five year repayment program at 0% interest and 75% of the balance.

            You may not want to blame a lender for not lending to someone that has settled a debt. I understand that. But lenders extend credit to people that filed bankruptcy. There is no consistency in the approach. Depends on the creditor.

            I recognize the old 5 C position of your lending statement but these days many decision never take that into account and decisions are made on credit scores alone.

            And while you are critical of the post and the points raised, don’t look now but you just did the same thing you are accusing me of.

            Let me just ask you one question. What is the historical success rate of consumers repaying their debt in full using a debt management plan?

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