Frequently Asked Questions

Q: How does this program work?

Debt Settlement involved negotiating with creditor to pay off a percentage of your total debts owed on your unsecured debt at agreed upon settlement amount.  This is a program not base on credit or equity, but rather on hardship.  Debt settlement is a smart alternative to bankruptcy and is considered the fastest, most aggressive approach to getting out of debt in the shortest time possible, without filing for bankruptcy.  Put a stop to never-ending minimum payments which hardly put a dent on your balance.  We can help!

Q: What kind of debt can be negotiated?

As a general rule, any type of unsecured debt can be successfully negotiated. Unsecured debt is one that is not tied to a specific material item that could be repossessed by a creditor. An auto loan, for example, could not be included because the creditor could legally repossess the vehicle. Credit card debt, medical bills in collections, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts are all unsecured debt that can be included in our program. The main exception here are student loans, which in most cases are government backed loans that cannot even be discharged in a bankruptcy proceeding (Private student loans that are not sponsored by the government can be included).

Q: How is debt settlement different from bankruptcy?

Debt Settlement is an alternative to bankruptcy.   It provides a proven method to save money and to settle your debts with the process of negotiation.  Bankruptcy stay on your credit report for 10 years and can have a negative impact such as denial of employment, insurance, and state licenses.   You can be denied of any type of credit with bankruptcy on your record. The latest changes to bankruptcy law makes it harder for some people to obtain financial relief by filing Chapter 7 bankruptcy, the method of liquidating assets to eliminate your debt.  People with higher income are no longer allowed to use Chapter 7 bankruptcy, but instead have to repay a portion of their debt under Chapter 13.  Before you can file for Chapter 7 or 13, you must complete credit counseling with an agency approved by the United States Trustee’s office.  The effects of Debt Settlement on your credit will be less damaging than a bankruptcy mark on your credit for 10 years.

Q: What happens to my credit?

Some people are concern with the short term negative affect debt settlement has on their credit score.   However, few people with financial hardship have perfect credit to begin with.  You need to understand how credit score actually works.   The goal is to get you out of debt in much less time and on our way to financial freedom.  Debt settlement has an immediate short term negative affect on your credit score.  In general, you credit score will decrease while you are in the program, and will start to improve again after you become debt-free.  Decrease in credit score is seldom an issue for people.  Once you complete the debt settlement program, your credit score will have an opportunity to become much higher than it was even before entering the program.

Q: Can I settle my own debts?

Yes, consumer can negotiate his or her own debt.  There are quite a few vital factors that consumer should be taken into consideration before taking this challenge.  This can be very time consuming when dealing with the complexities of the negotiation process.  Consumer not only can be bully, pressure, and deceived; they can also fall into traps, and tricks used by the creditors.  The majority will find themselves better off working with a debt settlement professional.  We have the necessary skills and resources to get the job done.   Similar to other profession, there are various negotiation strategies and techniques used to get the most favorable settlement.  The likely result for consumer to negotiate their own debts will be a higher settlement or complete failure and disappointment.  A professional is more likely to get a better settlement.  The fees associated with this debt settlement service including paying off your debts will still be less than your original balances.  After you factor all these benefits into the equation, it makes sense to seek assistance from a professional.   Lets get started!

Q: How does debt settlement program work?

Debt Settlement works by negotiation and settling down the balance owed (principal) on your unsecured personal debt accounts through the time-honored process of creditor negotiation. This is different from simply reducing the interest rate as with Debt Consolidation and Credit Counseling, which do not affect the total debt balance. By negotiating and settling down the principal balance of your unsecured debt, Debt Settlement provides a smart alternative to bankruptcy.

Q: What are the differences between Debt Settlement and Credit Counseling?

The most important difference between these two programs is that with credit counseling, you pay back all of the debt balances, plus interest and fees, whereas with debt settlement, you pay back only a portion of your debt. That’s why debt settlement is a much faster path to getting out of debt than Credit Counseling. This means a lot less money out of your pocket is used in the debt settlement approach. Another key difference is that your debt settlement firm works solely for you, the consumer, and receives no compensation directly from the creditors. In other words, your debt settlement company is truly on your side. With a credit counseling agency, there is a dual relationship, where part of the credit counseling agency’s income comes from the client and the majority of it comes from kickbacks paid by the creditors. This creates a conflict of interest and creates doubt as to whose side the agency is really on. Also, debt settlement provides much more flexibility than credit counseling in both the monthly budget level and the types of accounts that may be enrolled. For example, if you have a really tough month and need to skip a payment, that situation can be absorbed by a debt settlement program, whereas it will cause serious problems with a credit counseling program. Further, if your accounts have “charged off” and gone into the third-party collections cycle, you can still enroll those obligations in a debt settlement program where they will be rejected by a credit counseling agency.

Q: What kind of debt can be negotiated?

Although we have many guidelines that depict what we can or cannot negotiate, we use as a general rule that any type of unsecured debt can be successfully negotiated. Unsecured debt is one that is not tied to a specific material item that could be repossessed by a creditor. An auto loan, for example, could not be included because the creditor could legally repossess the vehicle. Credit card debt, medical bills in collections, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts are all types of accounts that can be included in our program.

Q: Are there debts that can’t be entered into the program?

Secured debts cannot be entered into our debt settlement program. This includes home loans, second or third mortgages, equity lines of credit, auto loans, and financing contracts tied to a specific piece of property that may be legally repossessed by the creditor. Federal student loans, although unsecured, must also be excluded from the program. In addition, Federal and State taxes cannot be included.

Q: What if a creditor won’t negotiate?

In the course of business, we have established contacts with major banks, collection agencies, and collection attorneys. Debt settlement is recognized as a viable solution by collection industry professionals, and at CDS we pride ourselves on the professional reputation we have established by dealing fairly with creditors. In the rare instance where a creditor balks at accepting a reasonable settlement at the time it is proposed, it is often a matter of simply waiting for a different phase of the collection process. Some creditors are more inclined to negotiate than others, but virtually all of the major institutions eventually sell their accounts to collection agencies in order to get what they can for the account. Since the collections agencies acquire these accounts for pennies on the dollar, they are more inclined to accept a reasonable settlement offer, which still represents a profit on their purchase.

Q: Will debt settlement work for me?

While the debt settlement approach is not suitable for everyone, its flexible nature makes it applicable to a wide range of financial circumstances. For individuals and families seeking an alternative to bankruptcy, there is simply no better option to get out of debt. Here are a few guidelines to help you determine whether or not debt settlement is something you should consider:

1. Do you have a legitimate financial hardship condition?
Most debt problems are caused by some type of substantial financial hardship. Some common hardships are a decrease or loss of income, medical issues, or divorce/separation. These are legitimate financial hardships that can happen to anyone through no fault of their own and any one of these situations can destroy years of savings and hard work. The important point here is that the debt settlement system is not a “free lunch” for people who don’t feel like paying their bills. If you are in over your head due to a hardship circumstance, and you’d prefer to work things out with your creditors rather than declare bankruptcy, or perhaps you may not qualify for bankruptcy, then debt settlement can provide an honest and ethical debt relief alternative.

2. Are you committed to avoiding bankruptcy?
Debt settlement is best viewed as a bankruptcy alternative; one that allows you to keep control over the process while working through your financial difficulties. As with most things in life, success is determined by your level of commitment to staying the course, even when the road gets bumpy. If you are likely to give up at the first rough spot, then debt settlement is probably not the best choice for you. If you are determined to avoid bankruptcy, debt settlement will likely be the most attractive debt solution for you.

3. Do you owe more than $6,000 in unsecured debt?

We consider debt settlement as a “strong medicine” and it should be reserved for serious debt problems. While everyone’s budget is different, most people can work their way out of smaller debt obligations. If you only owe $3,000, for example, unless you are in an extremely tough situation, you can probably deal with that debt load by paying off the debt in full, or working yourself into some type of small consolidation loan or temporary payment arrangement. Smaller debt loads are more of a budgeting problem than a serious financial hardship. At ConsoliDebt Services Inc, we use the benchmark of $6,000 for evaluating whether or not a prospective client qualifies for our program. (Note: Exceptions are sometimes made based on individual circumstances.)

Q: What are the tax consequences?

The amount you save in a debt settlement is not taxable if you have a negative net worth at the time of the settlement. If you have a positive net worth at the time of the settlement, it is taxable. You will receive a 1099-C (”C” stands for “cancellation of debt”) for all debts settled.  Generally most people who are deep in debt have a negative net worth. But for the few that has a positive net worth would be subject to pay tax on the forgiven debt. So add up your debts. Then total the net value of your assets (so for your home, you take the fair market value and then subtract the mortgage and cost of sale if you were to sell it.)  If your debt exceeds your assets, you are insolvent.  Which also mean you have a negative net worth.  Most likely that you benefit way more and this will still be much less than the amount you would have to paid in interest considering the unlikely event you may owe tax on the forgiven debt balance.   We suggest you discuss this with your tax preparer or CPA.

Q: What about lawsuits?

Creditors have the right to pursue repayment in any means within the law. This includes lawsuits.  While Debt ConsoliDebt Services Inc is not a law firm and does not provide legal advice, we have a special network of attorneys who would be able to steer you in the direction should you encounter this along your path to recovery. We want our clients to understand that in the worst-case scenario a client may be required to pay significantly reduced attorney fees to attorneys not affiliated to ConsoliDebt Services, Inc. for the proper representation, if deemed necessary by the attorneys and the client. 

Q: Can my wages be garnished?

The threat of losing part of one’s wages to a garnishment action is truly frightening to someone already struggling financially. Actual garnishment actions do not happen without advance warning, court hearings and judgments issued. First, a creditor must bring a lawsuit, obtain a judgment, and then take an additional step to obtain authorization for the garnishment. Plus only one creditor can garnish your wages at a time. No one can take your paycheck without court approval, and you must be given notice of such court action through formal documentation. Although this is a possibility, we have resources available to our clients if a creditor should decide to pursue legal action, and as described above, the process to garnish wages is lengthy; lengthy enough to try to come to a settlement amount, payment arrangement or other type of negotiated pay back plan to avoid the garnishment process.