Debt Settlement Procedure

According to a fact, when a debtor constantly fails to pay his debt installments, creditors usually prefer to settle the debt or forgive some amount of the debt that one may owe instead of losing all the money owed if the debtor files for bankruptcy. Debt settlement is the process of negotiation carried among the borrower and the lender to lessen the amount of loan.  Debt settlement is usually considered a solution to unpaid debt payments of over a couple of months or an alternative to bankruptcy. money2

Usually, the debt settlement procedure comprises of discussions between the organizations that specialize in debt settlement on part of the borrower and the lender to lessen the total loan to a smaller quantity. Mostly, the lender and borrower decide on a certain percentage of the overall unpaid loan to be forfeited by the lender. But, debt settlement cannot be carried out for all kinds of loans. Uncollateralized loans that are not pledged by real assets like vehicle or a house may not be forfeited. Mostly, debt settlement is carried out by institutions that specialize in debt settlement or legal advisors who help lenders in negotiating debt settlement (https://www.lifeoncredit.ca/getting-out-of-debt-get-a-chance-with-debt-consolidation-loans/). As a compensation for the assistance, these institutions demand large payments in the shape of a fraction of the overall loan or a fraction of the loan money forfeited, plus a beginning registration fee and periodic payments are to be paid by the borrower.

Although debt settlement appears to be the best lawful answer available to past due installments, it is not free from drawbacks. After the settlement of debt it may take a few months or a few years to be approved for unsecured debt such as credit card debt or medical bills. Even after debt settlement takes place, it is reflected in the debt scores thus decreasing the debt standing of the borrower. On the other hand, if the lender promises beforehand to give a ‘paid in full’ letter, debt settlement may not influence the debt score.

Since debt settlement companies usually take money on a monthly basis and put the money in a trust account until a lump sum payment could be made to the creditor, the settlement process may take a few years. During this process the interest and fines may keep on accumulating and the installments may get bigger and bigger. The lenders may also seek professional help to claim the owed money or may prosecute the borrower so as to regain the advanced loan. As the debt settlement institutions demand a lot of compensation for their work and because of the prolonged settlement time, most clients pull out of settlement. After a few years of making payments to the settlement companies, clients may still be in the same position as before since most of the amount saved goes to the settlement companies as service fee.