QandAs: Loans

What is Debt Settlement?

Answer:
If you have excessive debt and cannot pay back the

money, a debt settlement may be a good alternative to bankruptcy. With a debt settlement, a creditor agrees to accept a payment that is less than the balance due.

The reduced payment will satisfy the debt, and the borrower is not required to make additional payments. Surprisingly, several creditors are ready to accept a debt settlement arrangement. In many cases, this is the only way they will recoup their money. If the borrower files for bankruptcy, the lender will not receive payment. Even if the lender were to seek legal recourse, the borrower will likely disregard a judgment, and the lender will have to pay attorney fees and court costs.

The debt settlement process takes approximately 12 – 36 months to complete. Debtors must contact a debt settlement company and ask for representation. Next, the debt settlement company will speak to all creditors and discuss a settlement amount. Once a settlement amount is agreed upon, the debtor no longer makes payments to the original creditor. Rather, all payments are sent directly to the debt settlement company, and the funds are deposited into a settlement account and used to repay the creditors.