Does My Debt Qualify For Debt Settlement?
By YourDebtDecision.com Published: 11/08/2008
Debts That Do And Don’t Qualify For Debt Settlement
There are some debts that qualify for Debt Settlement, and other debts that don’t. I’d like to elaborate on this a little further as it is important that you know what type of debt can be settled before you decide to move forward. Much to the surprise of consumers, there are certain types of debt that creditors will never agree to settle.
Generally speaking, unsecured debt is the type of debt that is going to qualify for the settlement process. Some of the most common unsecured debt includes:
1. Major credit cards. Examples include American Express, MasterCard, and Visa among many others.
2. Department store credit cards. Examples include cards provided by Sears, Macy’s, Home Depot and Best Buy among many others.
3. Medical and hospital bills that are in collections. Remember, if the debt is in collections (i.e. with a third-party debt collector) there is more negotiation room and therefore a greater likelihood to achieve a successful settlement. Medical and hospital bills that are not in collections are not typically acceptable debts.
4. Unsecured, revolving personal loans. This is typically a loan from a bank or credit union that is not secured by an asset. Since the loan is not secured by an asset, there is nothing for the bank to repossess if you stop making payments, which puts pressure on the bank to settle for something less than the full amount rather than receive nothing. In addition, the loan is revolving, which means that the loan amount may be withdrawn, repaid, and redrawn again in any manner and any number of times until the arrangement expires.
5. Unsecured closed-end loans – but only if it is in collections. This type of debt is very similar to the previous one, except that the loan is closed-end, which means that the borrower cannot change the number and amount of installments, the maturity date of when the loan is due, and/or the credit terms.
6. Auto Loans – where the car has already been repossessed. Any auto loan originates as a secured debt, as the bank can repossess the vehicle in the event you do not pay. However, even after repossessing the vehicle the bank will likely still try to collect on all or some of the debt to offset their costs. If the vehicle has already been repossessed, then there is no additional asset the bank can come after than the outstanding balance can typically be included in a Debt Settlement program.
7. Most accounts in collections. Such accounts in collections must be with a third-party debt collector, not the collections department of the original creditor.
On the other hand there are many types of debt, some of them secured debt, that you will not be able to settle through a typical Debt Settlement service provider. The primary reason that secured debts can’t be settled this way is that the creditor can simply repossess the asset if you do not pay. Since they can legally repossess the asset, there is no reason for them to have to accept a lower payment from you. The other debts that are not consider secured debts, but also can not be settled, are ones that have specific government regulations that apply, or some other restriction that makes it not worth the Debt Settlement service provider’s time to work on. Here is a list of debts that are not typically accepted into a settlement program.
1. Mortgages and Home Equity Loans. Secured debt.
2. Auto loans – where the vehicle has not been repossessed (see #6 above). Secured debt.
3. Loans that have been co-signed – unless both parties have agreed to participate in the Debt Settlement program, and the loan is an acceptable debt based on #s 1-7 above.
4. Federal, state and local taxes. Simply not acceptable.
5. Payday loans/Cash Call loans. These are high interest rate, short term loans that are given in anticipation of an upcoming paycheck that will be used to pay off the loan.
6. Student loans. Both government issued and private student loans are not typically accepted.
7. Utility bills. If the utility bill is still with the original creditor (i.e. utility service provider), then if you stop paying it they can stop the utility service. If the bills are with a third-party debt collector they can often be included.
8. Any debt that has been subject to prior litigation, court judgments, is represented by an attorney or for which a summons to appear in court has been issued in regards to it. Essentially it is often too late to do anything about a debt that is in this stage of collections so the Debt Settlement service provider does not want to inherit any unnecessary problems.
As you can see, there are many debts that will be accepted by most Debt Settlement service providers, as well as many debts that won’t. Take caution if a sales representative tells you they can accept a debt that I have identified above as not typically acceptable. While it is possible that they do accept such debts, it is unlikely, and the last thing you want to do is include a debt that is ultimately not accepted, and fall behind in payments on that debt. Why would a sales rep tell you a debt could be included when it can’t? I can think of at least two reasons. One, the sales rep didn’t know any better, which would raise a caution flag about everything they told you. Two, they are paid on commission and the more debt that gets included in the program the higher their likely commission, so perhaps they don’t have your best intentions in mind.