DEBT SETTLEMENTS

How does a person rid himself of debt without a bankruptcy? He can do this by settling his debts.

But in order to do this, he must reduce the debt in order be able to pay it all off. But can debt be reduced? Yes. Debt can be reduced by a process of negotiation where the creditors voluntarily agree to reduce the debt in exchange for a cash payment. A bankruptcy attorney is in a unique position to negotiate a settlement, because the creditors realize that the threat of a bankruptcy is genuine.

Debt settlement is not the same as debt consolidation or other debt management methods that spread out payments. Debt consolidation consolidates debts into one monthly payment, but it does not normally reduce the principal due on the debts. Some feel that it compounds the problem because it spreads it out over years. In order to end heavy debt without bankruptcy, sometimes a debtor must actually reduce the amount owed, not just change the way that it will be paid.

Debt settlement is the term we use for settling debts for a cash payment for less than the amount due. Debt settlements require cash payments.

In order to engage us to do debt settlements, our client must have sufficient cash available to make the requisite cash payments to settle his debts. We require the debt settlement client to have at least 50% of his outstanding settleable debts available in cash, but not necessarily all at once. We require 50% because, unless a client specifically wishes it, we never settle debts for more than 50%.

We do not hold any cash for debt settlement clients. All we do is negotiate each settlement, and when the client is ready, we make a commitment for payment of the agreed amount. When the commitment has been made, our clients forwards two checks to us. One check is made payable to the lender for the amount of the settlement and the other check is made payable to us for our services.

We then complete the transaction by sending the lender his check and obtaining sufficient documentation from the lender showing that the debt has been settled.

Our fee for debt settlement is a non-refundable retainer fee of $500 and 10% of what we save you for each debt settled. This is based upon the total amount reported due by the creditor at the time of the settlement.

We accept debt settlement clients from anywhere, not just Texas. However, we do not offer legal advice relating to any state law other than Texas and Louisiana.

Debt settlement is most effective for credit card debt. It will not stop a foreclosure or the repossession of a car. It will not stop IRS collections. But IRS does settle tax debt by means of a formal procedure called "Offer and Compromise.

We strongly advise against sending money to any business that intends to hold it for settlement or forward it to creditors unless you are certain that it is reliable.

There are disreputable businesses who will take your money without paying your creditors. Mr. Chesnutt has had several clients who have paid large sums in this manner and received no benefit whatever.

The Attorney General of Texas currently has over 700 unresolved formal complaints against debt consolidation businesses.

One recent example is a lady from Houston. This lady hired a debt consolidation business in by calling an 800 number from a television advertisement. She sent them a small amount each month and they were to forward it to her creditors - and keep a significant portion for their fee. She provided them with the authority to debit her bank account each month to ensure timely payment. She later discovered that in addition to the monthly payments made to pay her debts, the debt consolidation business was also withdrawing an additional amount to pay one of its employees' utility bills.

Sending money to these businesses is much like placing it in an unregulated bank run by people whom you have never met. Actually it is worse. Bank deposits cannot be seized by creditors of the bank because even in disreputable banks, the funds are held in trust. However, nothing prevents creditors of delinquent debt consolidation companies from seizing your money in their operating account to pay themselves for what the debt consolidation company owes them. It is for these reasons that we generally advise against agreements with debt consolidation businesses.