Know debt management & debt settlement

Many people are taking advantage of Debt Settlement instead of conventional Debt Management because they have not seen debt management offer the benefits sold to them.

U.K. debt settlement is not to be confused with full and final settlement where debt management companies have been known to hold onto client funds in which case the creditors get nothing until they decide to settle. Furthermore, the debt management company usually instructs the consumer not to make any payments to creditors. The intended effect is to scare creditors into settling the debt for less than the full amount. Typically, however, creditors simply begin collection procedures, which can include filing suit against the consumer in court. As long as consumers continue to make minimum monthly payments, creditors will not negotiate a reduced balance. However, when payments stop, balances continue to grow because of late fees and ongoing interest. This practice of holding client funds is regarded as unethical in the U.S. and U.K.

U.S. debt settlement differs slightly. There are several indicators that few consumers actually have their debt eliminated by full and final settlement. A survey of U.S. debt settlement companies found that 34.4% of enrollees had 75 percent or more of their debt settled within three years. Data released by the Colorado Attorney General showed that only 11.35 percent of consumers who had enrolled more than three years earlier had all of their debt settled.[4] And when asked to show that most of their customers are better off after debt settlement, industry leaders said that would be an "unrealistic measure." 

Consumers can arrange their own settlements by using advice found on web sites, hire a lawyer to act for them, or use debt settlement companies. In a New York Times article Cyndi Geerdes, an associate professor at the University of Illinois law school, states "Done correctly, (debt settlement) can absolutely help people". However, stopping payments to creditors as part of a debt settlement plan can reduce a consumer's credit score from 65 to 125 points, with higher impacts on those who were current on their payments prior to enrolling in the program. And missed payments can remain on a consumer's credit report for seven years even after a debt is settled

The Automatic Stay In Bankruptcy

When you file for bankruptcy an automatic stay order is issued. This order is served to creditors and prohibits them from making further collection attempts on the debt. Under this order, creditors cannot contact you; send you notifications regarding your debt or make attempts to take possession of your assets. The automatic stay order is also able to halt any repossession, wage garnishment or foreclosure proceedings.

While creditors may not like the fact they are restricted from making collection attempts they are required to adhere to the automatic stay, by Federal law. There are instances in which creditors may continue to attempt debt collections. If this happens, you need to notify creditors of your case by sending a copy of your "Notice of Filing Bankruptcy" and contact your bankruptcy attorney right away. Creditors that continue to make collection attempts after receiving these notifications could face penalty fines or more serious consequences.

The protection offered by this order does not apply to all debts. Unpaid child or spousal support payments are not protected under the automatic stay, and are collectible as originally determined. Generally, back taxes and ongoing tax debt obligations are also not protected under this order, and the IRS is free to continue collections as they desire. Student loan debts, pension loan payments and criminal restitution payments are also rarely offered protection under the automatic stay order.

Once your debts have been discharged in bankruptcy your debts have been resolved and, therefore, become non-collectible. However, this isn't to say that some creditors may not try to collect in the future. If your debts are discharged in a Chapter 7 case, the debts eligible for the automatic stay become permanent. This means that these debts cannot legally be pursued again in the future by the creditor. After a Chapter 13 bankruptcy, the automatic stay order becomes permanent and creditors cannot make attempts to collect outside of the terms outlined in the original repayment plan. In other words, any remaining debt that was not repaid according to the Chapter 13 plan becomes non-collectible.