Debt Settlement

What Is It?

Debt settlement is a method of resolving your debts by negotiating an agreement with your creditor to accept less than the full amount you owe. Generally, debts are settled by making a lump sum payment to the creditor in exchange for a release of any further liability on the debt.

Normally, only unsecured debts like credit cards and medical bills can be settled. Usually, first mortgage lenders and car lenders do not settle until after they have foreclosed or repossessed their collateral, sold it, and determined the amount left to be paid. Sometimes, though, second mortgage lenders will settle their debts, particularly if the real estate is worth less on the market than the current balance on the first mortgage.

How Does It Work?

Debt settlements are reached by negotiation with the creditor or its collection agency. Like in most negotiations, each side starts out asking for more than they know the other side is willing to do, but through compromise and exchange of offers the parties eventually settle on an acceptable settlement.

Of course, most people who are considering Dallas debt settlement or bankruptcy are having difficulty paying bills. So, the biggest issue in a debt settlement is usually obtaining the money to settle the debts. Professional debt settlement companies usually assist the consumer in setting up an escrow account or savings account where funds can accumulate. Then, when a sufficient amount is available, the negotiations begin.

Dallas Bankruptcy attorneys like Kellett Bartholow P.C. have lawyer trust accounts to hold money for clients. Where does this money come from? Usually the consumer has to stop paying on the debts he or she wants to settle. That way, the monthly payment that was going to the creditor can instead go toward settling the debt in the future. Sometimes people receive a gift, inheritance, or other lump sum that they would like to use toward settling their debts.

Of course, if a person stops paying on their credit card, they will start getting collection calls from the creditor, the account will eventually be referred to a collection agency, and the credit card company may sue for damages to try to collect the debt. And, of course, the account will be closed and reported as delinquent on the person