When consumers encounter financial difficulty, I believe it is important to review their potential solutions with the possible end results in mind. To me, the entire purpose behind debt relief intervention, is recovery.
What does the consumer need to do in order to resolve their situation, so they may recover, rebuild, and become productive again? That’s the basis for every evaluation that we conduct at Debt Relief A La Carte.
According to my previous clients, it takes 6 – 18 months after resolving all of ones delinquent debt to start acquiring new unsecured credit again. Consumers that have filed for chapter 7 bankruptcy have reported similar experiences as well.
I’ve previously written about my feelings towards long term debt settlement programs. Previously, I wrote about my concerns about their potential for success, the aspects of premature representation, possible exposure to lawsuits, interest, and the uncertainty of cost and outcome. In this article, my focus will be purely on recovery and why it’s so important.
The debt relief industry plays a very large role in our overall economy. If we look at debt relief from the perspective of recovery, we can greatly stimulate the debt relief platform, consumers futures, and our countries current economic condition.
Over the last few years, many people and families have suffered the effects of our economy. They have fallen behind on their bills and subsequently their credit has been impacted.
Approximately 70% of our national economy is driven by the consumer. Our goal as debt relief providers should be to create a path of recovery that enables the consumer to rebuild and become productive again, as soon as possible.
Let’s compare the recovery aspects of typical debt relief options. Recovery is dependent on the resolution of all delinquent debts. The only program listed below that doesn’t have an additional period of recovery, beyond the program duration, are debt management programs. The reason for this, is once a consumer completes a debt management program, the creditors generally remove the possible remarks on a consumers credit report pertaining to it.
The typical debt relief options are…
- Debt Management Programs (generally a 5 year program that may have an adverse effect on credit for the duration)
- Traditional Debt Settlement (generally 24 – 48 month programs that will have an adverse effect on credit for the duration)
- Shorter Term Debt Settlement (generally, 12 – 24 month programs that will have an adverse effect on credit for the duration)
- Re-ageing (generally a 3 month event, after 3 payments the account is generally brought back to current)
- Chapter 7 Bankruptcy – (generally takes 90 days to complete)
- Chapter 13 Bankruptcy – (generally takes 3 – 5 years to complete)
- Simultaneous Debt Settlement – (our average is 78 days to complete)
Let’s look at how long these particular options can take to recover from. Rather than basing it on my previous clients experiences, let’s be conservative and use 24 months for the duration of recovery.
- Debt Management (5 year plan) – 5 years
- 12 month Debt Settlement program – 3 years
- 24 month Debt Settlement program – 4 years
- 36 month Debt Settlement program – 5 years
- 48 month Debt Settlement program – 6 years
- Re-aging – 2 years 3 months
- Chapter 7 Bankruptcy – 2 years 3 months
- 3 year Chapter 13 Bankruptcy – 5 years
- 4 year Chapter 13 Bankruptcy – 6 years
- 5 year Chapter 13 Bankruptcy – 7 years
- Simultaneous Debt Settlement (based on our averages) – 2 years 3 months
The 3 options that stimulate and expedite recovery are –
1. Chapter 7 bankruptcy
2. Re-aging pre-charged off accounts
3. Simultaneous Debt Settlement
Coincidently, all 3 options have a potential recovery time of 2 years 3 months.
Consumers will generally experience a recovery time of 3 years after completing a 12 month program and 4 years after a 24 month program. Short term debt settlement programs are a great approach for consumers who don’t have a lot of debt, would prefer to avoid bankruptcy, or as alternative to a chapter 13. The additional 9 – 21 months needed for recovery can certainly be justified as worth it, to these segments of consumers. And, for consumers that are faced with chapter 13’s, their programs can potentially lessen the amount of time to recover.
The next wave of recovery is from…
6. Traditional Debt Settlement (36 month program)
7. Chapter 13 Bankruptcy (3 year plan)
8. Debt Management (5 year plan)
They may take 5 years to recover from.
The following wave is from…
9. Traditional Debt Settlement (48 month program)
10. Chapter 13 Bankruptcy (4 year plan)
These 48 month options may take 6 years to recover from.
Rounding out the list, we have…
11. Chapter 13 Bankruptcy (5 year plan)
Consumers may recover from a 5 year chapter 13 in 7 years. Interestingly, chapter 13 remarks on credit reports are generally removed after 7 years. So, from a recovery stand point, 5 year chapter 13 bankruptcy plans are pretty nasty.
The above detail on recovery should properly illustrate my position on long term debt settlement. Let’s forget the aspect of premature representation, exposure to interest, possible lawsuits, stress, uncertainty of cost and outcome, and the low success rates.
Just on the basis of recovery, how do long term debt settlement programs make sense?
Why steer a consumer into a plan that could take approximately 3 – 5 years longer to recover from when compared to a re-age, simultaneous debt settlement, or a chapter 7 bankruptcy option?
I get the fact that some people are totally against bankruptcy. But, if consumers knew how to understand their aspects of recovery, they would probably be more inclined to identify the most make sense solution to their problem.
I can also see a need for long term debt settlement for consumers that are faced with the prospect of a chapter 13. But, based on my experience, a lot of those consumers could settle their debts in 12 – 24 months, or possibly even simultaneously.
So, beyond the consumer who wants to avoid bankruptcy at all costs and the consumer who faces chapter 13 bankruptcy and can’t settle their debts in a short term program, I don’t see a great need for long term debt settlement. Chapter 7 bankruptcy is clearly the better alternative for recovery.
Why is recovery so important?
Recovery is pretty much the point, right? Yeah sure, the honorability factor exists and some people are hell bent on paying back their debts, regardless of the impact. But, for the general population, recovery is the goal of debt relief. Or, any solution to any problem, for that matter.
Would a cancer patient seek help that prolonged their recovery? Or would they seek help that enhances it? The analogy may be a bit crass, but if you think about it, there are many parallels.
When people are experiencing debt problems, it can be very taxing on their life. These problems contribute to divorces, family instability, income and job instability, social instability, depression, lack of personal growth, and host of other effects.
The amount of time to recover is critical in respect to the amount of damage that can be experienced by someone with debt problems.
And, in respect to our economy, the consumers recovery is pivotal.
4 years ago, when the meltdown was in full swing, the debt relief industry had the opportunity to assist our economy by promoting solutions that had efficient rehabilitation in mind. Our industries focus back then could have been the aspect of recovery. It could have been about showing the consumer their options based on the amount of time it would take them to rehabilitate. If the industry would have done so, there would be a far greater amount of consumers that would be back on their feet, rehabilitated, financially productive, pursuing their other life goals, far removed from their previous debt problem.
I suspect the debt relief industry will get another chance to get this right. Back before the previous meltdown, the main pressures to the economy were stagnant wages and out of control appreciation in housing. Energy and health insurance were on the rise, as well.
Our economic climate today, is much more worrisome. The financial pressures are more across the board. Food, energy, health and home owners insurance, utilities, local taxes, medical expenses, medications, health and beauty products, education costs. Almost every facet of a consumers survival expenses are faced with the prospect of greater and growing expense. As these costs continue to rise, consumers will have a greater need for debt relief.
When they do, please, for the sake of the consumer and our great country, educate them about the recovery aspects of their debt relief options. Show them the way that will allow them to resolve their problem with the purpose of rebuilding and moving forward in mind.
I’d like to thank Steve Rhode for this great opportunity. Steve, I appreciate you making your blog available to me. Thank you so much.
I really enjoyed writing these articles. I hope they help both consumers and debt settlement companies alike. Our industry can serve a great purpose. Let’s all do our best to make that a reality.
Debt Relief A La Carte, Inc