Since the financial meltdown in September 2008, I’ve been asked on a daily basis what effect the financial crisis will have on debt settlement. Will it be easier to settle now? Will the banks get tougher and make it more difficult to settle since they’re hurting for cash? The purpose of this long overdue blog post is to provide readers with some answers on this subject.
So far, it’s still “business as usual” in the world of debt settlement. Just as the passage of the new bankruptcy law back in 2005 had a lot of people wondering if it would negatively affect debt settlement, so also the financial crisis has everyone curious about the same thing. Yet the change in the bankruptcy law had very little effect at all on the settlement strategy, and I believe the same to be generally true of the financial meltdown.
Having said this much, I should note that I have noticed some *slight* changes – a little softening by one creditor here, a little more willingness by another creditor there to discuss settlement, and so on. I’ve also noticed, however, that the banks are doing more outsourcing to collection agencies, and this outsourcing is taking place earlier in the collection process than it used to. The reason is because the banks are being hit with a bubble of delinquent credit card accounts and do not want to add staff internally to handle the collections.
Normally, the major credit card banks handle their own collection activity internally up to the point of charge-off, and only outsource after they have officially written off the debt. Since collection agencies in general are more difficult to deal with than the banks directly, this is making some creditor negotiations a little more complicated. But at the end of the day, I’m still seeing the same settlements in situations like this that I would have expected had the client been still talking directly with the bank and not an outside agency. So we call this the “rent-an-agency” effect, and where it seems to be a new tactic for a particular creditor, it’s not having any measurable effect on the outcome of the negotiations.
My prediction is that as time goes by, and the wave of charge-offs increases in 2009, it will get a little easier to settle with the major banks. But I don’t think it will make a huge difference one way or the other. Let me put it this way. There are a number of important factors that go into a successful outcome on a debt settlement program. The financial crisis will be one of those factors eventually, but not a make-or-break factor.
The news is neutral to slightly positive from my perspective, and will probably continue to become better and better for the consumer in terms of settlements. But the effect of the crisis will never be anywhere near as important as a client’s ability to raise the funds needed to settle with! That will always remain the most important single factor in achieving success with the debt settlement strategy.
So if you’re looking into debt settlement, now is as good (or better) a time as any!