Settle Debts Quickly, Within 12-18 Months or Less
I’m going to be blunt here. You cannot settle debts equipped only with good intentions and a friendly tone of voice. It takes money to settle outstanding debts, and this strategy only makes sense if you have a realistic chance at moving quickly enough to settle everything before you get sued.
Whoops! What’s that about getting sued??? Yes, that’s correct. One really good thing about Chapter 13 bankruptcy is that none of the creditors included in the case can sue you! You give up the court’s protection when you adopt the approach of privately negotiating settlements instead. Take too long, and you might get sued by one or more creditors.
Traditional Debt Settlement companies still quote 36-48 month programs because setting the monthly payment commitment as low as possible permits them to enroll the maximum number of new clients. Yet they fail to address the mounting general risk of lawsuit attacks associated with these long duration programs.
They also fail to make any distinction between one creditor and the next, treating them equally in terms of litigation risk when in reality they are all unique and different from one another. This is one of the key reasons these companies do not publish performance data.
To achieve a successful outcome with debt settlement, it’s necessary to settle debts quickly enough to avoid lawsuit risk, and also to account for the difference between creditors when planning a debt settlement program.
Understanding the Collection Process: Time = Risk
To understand this risk better, it’s important to understand the Three Phases of the Collection Process for defaulted unsecured debts:
- Phase One lasts 6 months from default, and ends at charge-off.
- Phase Two begins after charge-off, usually involves the use of third party collection agencies or attorneys, and continues as long as the original creditor retains ownership of the debt.
- Phase Three begins when the original creditor sells the account to a debt purchaser.
The risk of lawsuits in Phase One is very low, and limited to certain specific aggressive creditors. After charge-off, as you move into Phase Two, the risk begins to increase, but usually not right away.
With many creditors, there is often an additional period of 6-12 months after charge-off where the accounts are placed for collections with regular agencies rather than attorneys.
As you move past 12-18 months from the point of default, the risk can start to climb out of control, with assignment to local law firms being much more common.
There is no set beginning point for Phase Three, but generally speaking most of the sales take place in the second year, which translates to greatly increased legal risk in the second year of the process and forward.
Bottom Line: FASTER IS BETTER when it comes to debt settlement. That’s why it’s important to be able to line up the resources needed to settle debts quickly enough.
How Much Will You Need to Settle Debts Quickly?
An accurate estimate for settlement funding would require an analysis of your specific list of accounts. However, just for the purpose of getting started, take your total unsecured debt balance and divide by two. So, for example, $100,000 of debt means you would need approximately $50,000 to settle everything. This allows for the growth in balances that still occurs prior to settlement, and also covers modest professional fees for Tailored Debt Settlement™.
Now ask yourself whether you can raise that much, if you are given anywhere from 12 to 18 months to do it? Saving as much per month as possible, tapping 401(k) or other retirement accounts where appropriate, borrowing from personal sources, selling vehicles or unneeded assets — these are all potential methods for raising the funds needed to settle debts quickly.
Most clients who would otherwise be facing Chapter 13 are stuck with that version of bankruptcy because they still have a decent income and/or assets that would have to be liquidated. Yet instead of filing Chapter 13 bankruptcy, those same resources could potentially be put to work settling debts in 12-18 months or less. That means people who successfully settle their debts gain a 3½ to 4 year head start on getting their financial lives back, compared to Chapter 13.