If you look closely you just may see the door beginning to close on the traditional Debt Settlement industry. That door is being closed by a combination of the rising number of consumer complaints against debt settlement companies, and the related regulatory proposals introduced by the Federal Trade Commission. However, as we all know, when one door closes another one is opened. Fortunately in this instance the new door leads to a more effective and consumer friendly debt relief service known as Debt Compromise.

While Debt Compromise may be a new concept in the debt relief industry, its roots stem from the very same Debt Settlement industry it is poised to take over. In many ways Debt Compromise is an evolution of the traditional Debt Settlement service model. But don’t be fooled by the fact that Debt Compromise bears resemblance to Debt Settlement because Debt Compromise is significantly better. You can think of Debt Compromise as the next generation of Debt Settlement, where the newer generation has improved upon the previous one by increasing its efficacy as a debt relief option, and eliminated most of the problems that plagued the traditional debt settlement service model.

To understand Debt Compromise it is helpful to understand the history from which it was born. Debt Settlement (i.e. the act of a debtor and a creditor settling a debt for a reduced amount) is a legitimate debt relief strategy.  Every day thousands of debts are settled by mutual agreement between a debtor and a creditor, and debtors realize significant savings in the process. The problem with debt settlement is not the actual act of settling a debt, but rather the service model or business model that was created by third parties to assist consumers with the debt settlement process. I will refer to this as the traditional debt settlement service model.

Under the traditional debt settlement service model, consumers hires debt settlement companies to perform the majority of the debt settlement services (i.e. handle creditor relations and negotiate settlements) and the consumer pays a fee for those services. While there is nothing inherently wrong with this service on the surface, the problem with the traditional debt settlement service model is that the vast majority of debt settlement companies charge the lion’s share of their fees at the beginning of the service, before actually providing any really effective services. This “front-loaded” fee model makes it very difficult for the majority of consumers to have any real success due to the fact that very little money is available early in the process to actually make settlement payments to their creditors.

It is not uncommon under the traditional debt settlement service model for a consumer to make six months worth of payments into the debt settlement program, only to find that more than 80% of those payments were deducted by the debt settlement company’s fees, and the consumer has little to nothing actually set aside in their account to pay their creditors. The result? Dissatisfied creditors, significant debt collection activity, negative reporting on the consumer’s credit report, no real progress in actually getting the consumer out of debt, and in some cases, lawsuits that left the consumer worse off than when they started.

This ineffective model has made it impossible for most consumers to be successful, resulting in a significant volume of consumer complaints. Regulatory bodies like states Attorney’s General Offices and the Federal Trade Commission have taken notice of this rising tide of dissatisfied consumers who have exerted increasing pressure on the industry to either disappear, or change. Considering the sheer numbers of consumers struggling with debt, the business opportunity was enticing to simply ignore, so an evolution of the traditional debt settlement service model was inevitable, and it has now evolved into Debt Compromise.

As was mentioned previously, consider Debt Compromise as an evolved form of Debt Settlement without most of the downsides of Debt Settlement. While Debt Compromise does bear resemblance to Debt Settlement, it also has one critical difference. That critical difference is the compromise that the third-party debt relief company must make to ensure the consumer’s success in settling their debts. More specifically, whereas under the traditional debt settlement service model the vast majority of debt settlement companies take their fees prior to rendering service, handicapping the consumer’s potential for success, under Debt Compromise the debt relief service provider charges the majority of their fees at the end of the service in relation to how much money they actually save the consumer.

Let me clarify that with an example. Let’s assume a consumer has $10,000 in credit card debt and they are investigating their debt relief options. Under the traditional debt settlement service model, the debt settlement company charges a fee equal to 15% of the total amount of debt enrolled into the program. In this example, 15% of $10,000 equals $1,500. In addition, recall that the problem with the traditional debt settlement service model is not the fee itself, but how, and more importantly when, the fee is assessed. Under the traditional debt settlement service model the $1,500 fee usually comes out over the first 10 months or so of payments, with the majority being due in the first three months, before any real services have been performed or results achieved. In addition, the fee is non-refundable regardless of whether or not any actual savings are ultimately achieved.

Under Debt Compromise, the debt compromise service provider also charges a 15% fee, however, that the fee is equal to 15% of the amount of money the debt compromise service provider is able to save, based on actual savings. This is referred to as a “back-end” or “performance based” fee model. They don’t charge a fee until they have actually obtained results. Let’s assume the debt compromise service provider is able to settle the consumer’s $10,000 debt for 50%, or $5,000 (a common result). The debt compromise service provider saved the consumer $5,000, and therefore the fee charged to the consumer would be $750 (i.e. $5,000 x 15% = $750). Not only is the debt compromise fee half of what is charged under the traditional debt settlement service model, but the fee is only charged after the savings results have been achieved.

Clearly Debt Compromise is a better alternative to traditional Debt Settlement, and consumers should expect to see more and more companies offering performance based fee models. In this discussion we have only discussed the advantages in terms of fees, but Debt Compromise offers additional advantages over Debt Settlement that will have to be discussed in a subsequent article. For now, consumers seeking debt relief should understand an alternative to traditional Debt Settlement exists, and Debt Compromise is clearly the better option and one that clearly has the consumer’s best interests in mind.

Popularity: 2% [?]

The general rule regarding cancellation of debt is that it is a taxable event. But there are some exceptions. The most common exceptions involve bankruptcy, the Mortgage Forgiveness Debt Relief Act (the "Act"), the insolvency provision, and certain farm and other business indebtedness.

If the cancellation of debt pertains to your primary residence and you don't qualify under the Act, you may be able to exclude the income under the insolvency exclusion. You are insolvent when, and to the extent, the amount of your liabilities exceed the fair value of your assets.

To determine if you are insolvent (and the amount by which you are insolvent), you should analyze your liabilities and the fair value of your assets immediately before the debt cancellation event. Accordingly, the definition of insolvency would be when your liabilities exceed your assets at a given point in time.

Remember that the insolvency calculation should be done just before the cancellation of debt occurred. This can be difficult because often the cancellation of debt occurred several months back. Just realize how difficult the process is to go back six months to a year in the past and try to determine the balance in your bank account and the value of any furniture, vehicles, etc.

Your assets would include the value of everything that you own, including assets that serve as collateral for your debt and assets that would ordinarily be beyond the reach of creditors under the law, such as your 401k, pension plans and retirement accounts.

Liabilities would include your debt including the entire amount of recourse debt and the amount of nonrecourse debt that is not in excess of the value of the property that is held as security by the debt.

Assets you have may include (but are not limited to) the following:

• Cash and bank account balances
• All real property (including land)
• Cars and other vehicles
• Boats and other watercraft
• Household goods and furnishings
• Appliances, computers, electronics, etc
• Jewelry
• Clothing & books
• Stocks, bonds and mutual funds
• Investments in coins, stamps, paintings, or other collectibles
• Firearms, tools, sports, photographic, and other hobby equipment
• Interests in retirement accounts (IRA accounts, 401(k) accounts, etc.)
• Interests in education accounts and cash value of life insurance
• Security deposits with landlords, utilities, etc.
• Value of investment in a business (including interests in partnerships)
• Other investments (for example, annuity contracts, guaranteed investment contracts, and commodity accounts).

Liabilities you have may include (but are not limited to) the following:

• Credit card debt
• Mortgage(s) on all real property including 1st and 2nd mortgages
• Car and other vehicle loans
• Medical bills
• Student loans
• Accrued or past due mortgage interest and/or real estate taxes
• Accrued or past due utilities (water, gas, electric, etc.)
• Federal or states income taxes remaining due (for prior tax years)
• Loans from 401k accounts, other retirement plans and life insurance policies
• Judgements
• Business debts (including those owed as a sole proprietor or partner)
• Margin debt on stocks and other debt to purchase or secured by investment assets other than real property
• Other liabilities (debts) not included above

The insolvency exclusion is complex and you should use a CPA or other tax or legal professional to assist you with the calculation. You must use proper diligence in determining the amounts on the solvency calculation. This includes proper support for the fair market valuations of assets and liabilities, which may include (but is not limited to) appraisals, independent valuations, market studies, account statements, etc. You must retain any and all supporting documentation relating to the insolvency calculation.

This article is written for informational purposes only and is not intended to be tax or legal advice. Each situation is different and you must discuss your situation with a qualified tax or legal professional. We inform you that any federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Popularity: 2% [?]

A debt settlement letter is considered as a formal proposal written by a debtor to his or her creditor with the main intention of reducing the total debt due to financial hardship. There is no big cost involved for writing a settlement letter. It is almost free of charge except the cost for registered mail. This letter works best for most of the people because they can avoid begging their creditors for assistance due to their egoism.

Let's take a closer look on what important roles a debt settlement letter is playing:

It acts as a communication tool to assist the debtor to negotiate with the creditor to lower the total outstanding balances It assists the debtor to eliminate the total debts at a faster pace It helps to prevent the creditor from selling the debtor's account to debt collection agencies Even if the debtor's account has been sold to the collection agents, the letter can still act as a tool to stop the irritating calls from them It explains the financial hardship the debtor is facing It highlights the debtor's concern about his or her credit rating It serves as a proof that the debtor has put in effort to solve the debt issues in a formal manner It conveys the message from the debtor clearly that he or she wants to remove the negative items from the credit report

Writing settlement letter is a popular trend currently as it helps to reduce the increasing rate of bankruptcies in United States. It also helps the people in debt to improve their credit score in the long run after the reduced debt amount is fully paid.

Popularity: 2% [?]

There has been a lot of press attention recently regarding being able to legally ‘write off debts’, this being unsecured credit cards and loans. A lot of people are asking ‘is this a scam’ and ‘how can this be possible?’ Well to clear things up it is NOT a scam and YES it can be done. Read on…

There are some credit cards and loan agreements out there which lack what is know as ‘prescribed terms’. Without these ‘prescribed terms’ the contract is not legal and will not stand up in a court of law. This means that if you loan or credit card contract is missing these terms then it could be challenged in a court of law and, if found to be unenforceable, you could have the entire balance written off.

Is this a scam or a debt loophole?
A lot of people have heard bad press regarding the debt write off process and it’s understandable as it seems too good to be true, but the fact is it’s simply an application of the Consumer Credit Act 1974. To explain further, the Act was amended in 2006 with section 127 being removed. This section was specifically designed to protect consumer from lenders who supply loans and credit cards without the correct documentation. The section was re-added on 6th April 2007 but it means that any improperly drafted agreements taken out before this date could be completely unenforceable and the debt can effectively be written off.

There is around a 70% success rate in such cases and amazingly, around 70% of current credit agreements in circulation could be deemed as ‘unenforceable’. This could result in millions of pounds of consumer debt being potentially written off, its no wonder the banks don’t want this to get into the mainstream!

Take a recent example which was reported from the BBC’s Panorama programme. Basil and Amanda Rankine from Rugeley effectively challenged 6 of their credit agreements and wiped off £37,000 from their unsecured debts. Unfortunately they did not fully understand the legal process and were presented with a bill at the end which effectively equated to the amount that was written off, so it’s important to consult a specialist solicitor before beginning the debt write off process.

If you want to try yourself you can do. The first step is you must send a ‘Consumer Credit Agreement Request’ under Section 77 or 78 of the Act along with a standard fee of £1 made payable to the creditor. It is also advisable to send a ‘Subject Access Request’ under the Data Protection Act 1998 in which the creditor must supply all information to you regarding your account. This will cost you a further £10. Whatever you do, don’t sign any letters you send them. This is very important. If they cannot supply the agreement at all then the debt is effectively unenforceable but there has been rumours that some creditors may do there own’ Blue Peter’ version of your credit agreement using the signature on your letter. Also remember to send all correspondence via Recorded Delivery.

I should stress by attempting to do this yourself you are entering legal realms and you must be very careful how you proceed further. These matters should only be handled by a qualified solicitor.

You can find more information here.

But is the ‘Debt Write Off’ process ethical?
Well now let’s see… Are banks completely honest with us? They are mean to be our friends aren’t they? There to help us is time of need?

Do they not charge us for going a couple of pence into the red or at any available opportunity for that matter? Do they not offer to lend us money when we don’t really need it, and then WON’T lend us money when we really do? Do they not choose to pay off the least expensive parts of our balance every month so they can make more money off us through interest, even without us knowing? Do they not spring charges on you which have been hidden in the small print? Do they not sell our debts on to unscrupulous ‘Debt Collection’ companies willing to pay the highest bid? Do they not award their top directors with billions of pounds worth of bonuses while the taxpayer pays for their ‘bailout’ and customers are losing their homes? Do they actually have a positive effect on our economy?

So the decision is up to you, but this method is only recommended for people in serious financial difficulty, after all why would the rest of us want to reclaim our money from the banks? The banks are our friend’s right?

You can find more information on the debt write off process at our website; How to legally write off debts.

Don’t struggle with your finances and get professional help now. If the debt write off process is not for you, there are other solutions which can help you get out of debt effectively.

Popularity: 4% [?]

Credit cards are an essential part of the way we all live today, but the very convenience of them can make it all too easy to overstretch ourselves.  Being able to just make a minimum payment each month is very tempting, but in the long term it can lead to very substantial debts that become difficult or impossible to pay back.  This is the point at which the card companies who were so eager to help us spend money now turn rather serious and start threatening to take us to court.

This is not a pleasant experience for anyone, particularly if you do not understand the legal situation and are not sure if they really can do what they threaten to.  Sometimes your dealings will be with the card company themselves, and other times you may be approached by a debt collection agency.  Not all collection agencies have a reputation for honesty and integrity, so it is understandable that we may wonder if they are telling us the whole truth when they threaten to sue.

The fact is that a credit card company can sue you for debt if they choose to, and it does not really matter whether you are being approached by the card company or a collection agency.  The agency will either be acting on behalf of the card company, or may even have bought the debt themselves.  In the latter case you will now owe the money to the collection agency and the principles around being sued are exactly the same.

The consequences of being sued successfully are that a court order will be made against you, and you will be ordered to make payments at a rate that the court decides is fair, considering your financial circumstances.  You do not need to worry that you might be sent to prison as a result of this action, but it will have a lasting impact on your credit rating and is certainly best avoided.  Also, the consequences do get a lot more serious if you then default on the payments ordered by the court.

Whether the card companies will sue you or not depends on many factors, but if you appear to just ignore the situation, you are making it far more likely that they will.  Even if you are already being threatened with legal action, it is not too late to avoid this by using one of the options available to you to deal with your debts.

Credit card debt is what is called an unsecured debt, as it is not tied to any asset (unlike your mortgage for example).  If you have a substantial amount of unsecured debt there are two main options open to you that will lead to you being debt free again, so these are at least worth considering.  They are for any kind of unsecured debts, so could also include any personal loans, bank overdrafts, etc.

The first option is a debt management plan, which involves a specialist company negotiating new repayment terms with your creditors.  This leads to a single affordable payment that you make each month to the debt management company.  It instantly reduces what you pay, simplifies your payments and stops the card companies hassling you.  To set up a plan you need to have an income and some money spare each month to meet the payments.  Such plans are widely available in both the US and UK.

If your situation is more serious and you would struggle to make the payments on a debt management plan, then your best option may be debt settlement.  This involves using expert negotiators to work out deals with all your creditors to settle your debts for substantially reduced amounts, in exchange for quick repayment.  In the UK there is a scheme called an IVA, which fulfils the same function as debt settlement, dealing with serious debts and writing off part of them.

So if a credit card company is threatening to sue you for debt, the best thing you can do is look into debt management, settlement or an IVA, depending on your situation and where you live.  This will send a clear message to the card companies that you are trying to tackle the situation.  When it comes to finding a good company to work with, you need to be cautious as there are a huge number to choose from, and they are unfortunately not all effective or ethical.

The best ones are experienced experts who will do all they can to get you out of debt, whereas the worst ones are really just out to take money from you.  You should therefore always look for well established companies that can demonstrate a record of success in dealing with people in debt.  The safest starting point is to follow recommendations for known reputable companies and to always approach at least two, so that you can consider what each one offers and choose which you prefer.

Popularity: 5% [?]