Originally published December 11, 2009
Consumer debt is a world of double standards. On one hand you have advocates screaming about the evils of debt settlements or that groups that charge people for professional help to do debt settlements are ripping off consumers because settling debts is something that anyone can do.
Don’t get me wrong, I’m not a huge fan of debt settlement plans that consumers pay monthly into and then funds are paid out, as available, to creditors to settle debts. My distaste for these plans is not that they actually work but that no matter how much disclaimer you give people about the consequences, it does not seem to register and leads to complaints from consumers.
Debtor consumers are perceived by regulators to be a disadvantaged class of people and thus any group that offers fee based services is assumed to be guilty before innocent of any complaint levied by a constituent consumer. Even if the debt settlement company can clearly show that the consumer was made contractually aware of potential pitfalls of debt settlement, acknowledged the issues and consented to move ahead with the debt settlement approach, the debt settlement company will still be held out as the villain.
The major hurdles with debt settlements when monthly payments are made into a settlement fund are that the consumer:
- Is often not mentally prepared for continued collection activity.
- Is easily rattled by threats from debt collectors.
- Reads and then believes information telling them they have been ripped off.
- Is not prepared for the hit their credit report and credit score will take.
- Can be sued by creditors before final settlement.
- Does not remember tax consequences of settling debts and is surprised when they get a tax bill.
I am a firm believer in lump sum debt settlements where the debt is settled in full with cash on hand. The debtor is relieved of their obligation immediately the matter is put to rest, right now. I’ve seen many cases be settled in this fashion, avoiding bankruptcy, and ending creditor stress.
Well, all of that being said, in a long winded effort to get back around to Hillary Clinton, who I think would be a great appointment to Secretary of State if she gets the job.
With some minor rules, a political campaign can settle debts owed to it for less than it owes and file a Debt Settlement Plan with the FEC, to report the plan. (Debt Settlement Plan instructions) This is in lieu of a political campaign going bankrupt for debts owed to vendors of the campaign.
Probably the most famous case of lingering political debts was that of John Glenn who’s 1984 presidential run left him with $3 million of good old American debt. It took about 20 years before that issue was put to rest but early on he was able to settle about $220,000 of debt for $90,000. Not a bad deal. You can see the public filing of the Glenn Debt Settlement Plan here.
Clinton is not the only candidate this year to run into the red. Rudy Giuliani’s website is actively soliciting donations to retire his campaign’s still-stinging primary debts, and Giuliani teamed with McCain in a version of Debtventure No. 3 when, earlier this year, the McCain campaign promised to help Giuliani retire his debt (though these efforts have been a bit neglected, as McCain has had his mind on other things). TNR
So here is where all this leaves me, if debt settlement is a good and recognized tool for political campaigns to use, why isn’t it good enough for the average person to use to put unfortunate and lingering debts to rest?