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| The Falling American Economy And The Rise Of Debt Settlement |
By:
Jason Cooper |
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Ask any economist about the problems with household finances within the United States, and they'll offer a string of arguments - everything from the rising prices of gas and food to the problems with health insurance to the transition from manufacturing toward a service based economy. One thing they tend to ignore, since our economy essentially depends on such behavior, is the exponential rise in consumer debt. Personal debt loads have inflated dramatically over the past generation. They say the average American family now owes nearly eight thousand dollars in unsecured (meaning, beyond car loans or home mortgages) debts, and, thanks to the wonders of compound interest, those balances grow every day.
Alongside the unprecedented spike in personal debt loads, there has been another rather significant (even if criminally under reported) change - the 2005 passage of legislation that dramatically worsened the chances for average Americans to claim Chapter 7 bankruptcy protection. As things stand, should anyone filing for bankruptcy fail to meet the Internal Revenue Service regulated 'means test', they would instead by shelved into the Chapter 13 debt restructuring plan. Essentially, Chapter 13 bankruptcies simply tell borrowers that they must pay back the majority of their debts to all lenders. They just have to do so a little more quickly, under court mandated budgets that follow IRS guidelines, and the penalties for failure are exponentially more severe.
Considering all of this, it's no surprise that different businesses have grown to help the average borrower escape from consumer debt without unnecessary hardships. Equity loans and second mortgages appear as visions whenever consumers enter their own banks. Just open a checking account and untold loan officers will promise immediate reduction in payments (since the terms are lengthened) and interest rates (though they'll be about double the mortgage) for the entirety of the debt added to whatever equity's grown within the property: the average homeowner's primary investment. Of course, those interest rates tend to be adjustable - though never somehow adjusting lower - and the borrowers, given new spending liberties, never quite seem to pay them off as quickly as the ever flattering loan officer made them believe.
In a tragic sort of fortune, the decline of the sub-prime lending industry has effectively nullified these sorts of transactions, but, even if homeowners find one lender extant eager to buy their equity for initially meager rates, they should realize how very fragile home ownership can be. More to the point, they should realize how quickly mortgage bankers will take advantage of a missed payment or three to take claim of their home once the owners have relinquished equity. Fulfilling the circle of irony, this happens more and more frequently now that home values have fallen across the nation … because of the dimming economy … which, much as anything, has been caused by the implosion of sub-prime lenders.
As borrowers become less likely to risk shelter to rid themselves of debt, Consumer Credit Counseling programs have become equally well known, not least because of their ubiquitous advertisements. Still, whatever CCC commercials may insist, their effect upon credit ratings and FICO credit scores is not that much better than the salted earth vendettas launched by bankruptcy declarations. In an even more serious note, government watchdogs have determined that many of the so-called Consumer Credit Counselors are in the pocket of the very creditors they pretend to work against despite whatever fees are collected from their supposed clients.
Debt settlement, comparatively, is still an unknown commodity. Some financial magazines have written articles, to be sure. Still, the debt settlement industry - borne upon the needs of average consumers alone; accepting no moneys from their credit card company adversaries - hasn't the advertising outlay to keep up with the Consumer Credit Counseling or bankruptcy attorney barrage. The business of debt settlement actually developed a little over twenty years ago just as Wall Street bankers fallen upon hard times realized that they had bills they were unable to pay yet did not want to subject their assets (even under those endlessly forgiving past statutes) to government seizure. As Chapter 7 and Chapter 13 protections have receded, former practitioners began attempting the same precepts among common folk and found that creditors, regardless of the amounts they were handling, behaved with precisely the same fear and equivocation.
In its essence, debt settlement negotiation pits trained (and industry certified) mediators against their debtor client's creditors. To the uninitiated observer, this might seem an unfair battle. After all, the debtors have signed legally binding contracts to fulfill their financial obligations, and, however charismatic or authoritative their negotiators may be, it beggars reason that multinational conglomerates would so easily give up money that's rightfully theirs. However, much as current statues have diluted such safeguards, bankruptcy protection does still exist in America. Furthermore, however tightly the Internal Revenue Service has closed loopholes, the decision on whether or not to extend Chapter 7 privileges toward individuals or families shall still lie at the hands of a trustee appointed by the courts. For now, anyway, human sympathy may still make a difference as to the financial well being of our citizenry. These distinctions might only matter to, perhaps, a tiny percentage of those filing for bankruptcy, but the existence of this threat affects all. And shakes the pillars of Mastercard.
Of course, as with any decisive battle, there are consequences - victors and losers upon all sides. Debtors that readily can prove a steady income rendering their debt payments less than twenty percent of their average earnings should find themselves unready for combat; they're all too easily at risk for garnishment or attachment of assets. Worse yet, debtors without any income at all, those that could not possibly fulfill the payment schedules promised by the debt settlement schedules, haven't much hope of finding debt specialists willing to help assist. After all, the guiding principle behind debt settlement negotiations lies behind paying back one's debtors - paying back less, on easier terms, to be sure, but payment lies at the heart of the struggle.
At the same point, make no mistake, it isn't just creditors that want to be paid. Debt settlement professionals, no matter how much they may enjoy the thrill of the fight, shall demand their price. For successful negotiations, a small portion of the balance shouldn't seem very much - not after fifty percent has been cut away - but every borrower must still make sure to ask their debt settlement company's fee and compare the fee with competing companies. This one instance, thrifty behavior isn't purely to be prized. Many debt settlement companies that ask more money do actually deserve more money. Experience, competence, and infrastructure pay dividends with this sort of business, and too many firms charge less just because they have to.
Those suffering through the debt settlement process should expect, still, to pay a service charge between five and fifteen percent of the overall debt. While most reputable companies offer consultations without fee, many do ask for the eventual service charge to be paid at the start of the settlement process. This method may seem to question the client's character, but one should consider the circumstances involved. There is also the possibility of funds added to the overall balance for eventual repayment alongside the consolidated debts. Much depends upon the specific circumstances, and, however dire the borrower's case, the credit ratings of whomever wishes to try debt settlement. Credit scores will still fall under this system - not nearly as much as they would under Chapter 7 bankruptcy or Consumer Credit Counseling protection, mind - but they will still fall.
End of the day, it's all about settling debts. The lenders will always win. Even, should the borrower burrow his way through Chapter 7 bankruptcy proceedings, the owners of the credit card companies won't have to worry about goods seized or artificially applied household budgets. Not all lenders will even surrender to the settlement process - a number of credit card companies, Chase and US Bank among them, still refuse to negotiate. More and more, though, as the consumer debt epidemic spreads, creditors honestly do wish to strike some accord with borrowers that, because of everything they've ever been taught by society, have accumulated financial obligations they could never satisfy. Better a smaller debt repaid, after all, than a full accounting lost to the ethers.
Bankruptcy was the debtor's last gasp of a different age - one in which people genuinely felt shame for unmet obligations and thought financial burdens life threatening. Stand around a college coffee house some time and listen to the conversations. Men and women not yet twenty one boast about the extent of their mortgaged futures. For a good number of Americans, even under current statutes, bankruptcy can be a Get Out Of Jail Free card provided they've no plans for home or career or retirement - which accounts for all too many of our countrymen. It's still the final alternative, but, for generations devoted to living in the moment, that doesn't qualify as a threat.
Debt settlement, in its way, might be the new (final) alternative - less invasive, more therapeutic, and, above all, conscious that many borrowers never fully understood the repercussions of what amounted to subsidized impulse spending. Within the debt settlement program, not only are clients given a relatively fresh start, but, by paying back a significant portion of what they had borrowed, they also should gain a bit of perspective about debt and consequence. One can't make someone change lifelong habits, of course, nor make them ignore a social dictate toward spending beyond limits. A good debt settlement specialist, though, might be able to force some recognition of the debtors' future and, should that hold, help them plan a better tomorrow. In every way, give them the means and help them recognize the dividends. |
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