This is the sixth in a series of posts discussing the most common myths about do-it-yourself debt settlement. Most traditional debt settlement firms are still quoting program durations of 36-48 months, sometimes longer, and clients are led to believe that it’s safe to take that long. By “safe,” I mean a low risk of lawsuit activity. After all, multiple lawsuits will tend to push a client into bankruptcy and therefore defeat the original purpose of using the debt settlement approach.
To begin with, let’s make the obvious point that it makes little sense to avoid a 3-5 year Chapter 13 bankruptcy when you’ll be fully exposed to collection activity (including potential litigation) for 3-4 years in a debt settlement program. In bankruptcy, your creditors cannot sue you to recover. That is not the case with debt settlement. The longer a debt settlement program lasts, the greater the likelihood the client will see one or more lawsuits before the program is completed.
Sales reps still quote 36-48 month durations (or longer!) because it provides the illusion of relief to the client. “You mean I can pay $600/month for 36 months and everything will be handled?” That’s the pitch anyway. The reality is that enrollment into such a program does NOTHING to stop the in-progress collection efforts by the creditors. Once an account rolls past charge-off after 6 months of delinquency, the risk of litigation becomes higher and higher as time goes by. In my experience, lawsuit risk climbs to an unacceptable level when you push too far past the initial 12-month period after default. Prior to that, there is still risk, but it’s usually lower risk and much more manageable.
Here at ZipDebt, our clients settle most of their debts before charge-off, and the remaining accounts are usually resolved within a total program duration of 12 months. Why are we so much more successful at expediting this process vs. the folks quoting 36 month programs? Simple. We are not focused on “making the sale” by presenting an option that is simply not effective on the long run. We prefer to push our clients to “go find the money” to settle quickly, and that is precisely what most of them do once they understand how the math works! We get our clients to start thinking in terms of the ASSETS they still have left to work with, and converting those assets to cash, instead of relying exclusively on the client’s monthly budget the way most companies do. We aim for fast relief instead of slow torture!
Our results speak for themselves. It’s very difficult to find published data on litigation rates by any of the prominent debt settlement firms. The incidence of lawsuit activity is something they really don’t want to be common knowledge among consumers. When you can find such data, however, you’ll see that clients enrolled in traditional 3-4-year debt settlement programs routinely experience legal action. It’s almost impossible to take 3-4 years to settle your debts without seeing one or more lawsuits. By comparison, for the 2.5 year period of 2010-2011-2012 (to date), ZipDebt clients have reported 2,251 credit card account settlements. Out of those 2,251 settlements, only 41 were reported as having reached the status of a lawsuit, less than a 2% incidence rate. A rather glaring difference!
Myth busted. 36-month debt settlement programs are long obsolete, and lawsuit risk climbs to near certainty on one or more accounts during the second & third year of default. Fast-track debt settlement, where the debts are all settled inside of 12 months, is a far superior approach, with a lawsuit risk of approximately 2% per account.
This post was contributed by Charles Phelan at ZipDebt.