Hi Steve, I’ve recently made the decision to purchase a home but before I can I need to raise my credit score. As a consequence of that I’ve decided to attempt to settle with old creditors for a change of the status they are reporting to the credit bureaus. A bit more info: I made the unfortunate decision a few years ago, before I knew any better, to engage with a debt settlement company. I didn’t know they would simply collect my money and wait until the creditors would settle for any amount- and with great effect to my credit.
I read your article about how to get a refund from debt settlement companies and intend to follow your steps to get a refund but I had a question about what exactly I should request. I asked them to negotiate with 3 different creditors, who at this point have all reported the debts as charged off. After paying them monthly for about 16 months (the first 10 of which was only fees to the company) they have apparently begun to pay out of the third party escrow account to the smallest of the creditors. At this point something like 500 dollars has been paid to that creditor- my question is do I exclude those payments from the total I request refunded and more importantly, to me, how do I handle settling that account in the future? Once my contract with the debt settlement company is ended do I simply take over the payments they were making on my behalf to that creditor?
It looks like you got snagged in one of those advanced fee debt settlement models and learned the unfortunate lesson that when you pays all the fees up-front it only puts you further behind.
From my point of view the issue here is that you simply want a refund of fees not yet earned. It is quite probable they may only offer you a partial refund and that may be reasonable.
Ultimately, when you settle a debt the amount of debt forgiven will appear on your credit report as a bad debt. You might want to talk to your mortgage broker about how this might impact your ability to get a mortgage. The broker might say that it would be best to show the entire past due balance as paid in full, rather than settled. That would be something really important to nail down before you embark on the current path of settling since your primary goal is to buy the home.
Please post your responses and follow-up messages to me on this in the comments section below.