In Home Sales Training Manual Debt Settlement Program

[Pages:13]In Home Sales Training Manual Debt Settlement Program

Introduction to the industry

The debt relief business is booming because of the rise in unemployment rates, the poor economy, and those who have found themselves in financial hardship for many different reasons. Due to current economic times, many households are only one emergency away from financial hardship. In 2007, in 60% of all bankruptcies, medical bills were a contributing factor. There are two different kinds of companies in the debt relief business, consumer credit counseling services and debt settlement programs. Both companies work only with unsecured debt. Secured debt is debt where there is collateral attached to the loan and if the loan is not repaid then the collateral is seized. Unsecured debt is defined as debt that is not attached to any collateral.

Consumer credit counseling services help consumers by reducing interest and fees paid to creditors. The consumer still pays 100% of the principal of the loans paid. Generally, consumer credit counseling services are non-profit companies. However, creditors fund many consumer credit counseling service companies. This can pose an issue for consumers because the company may not always have the best interest of the consumer at heart.

Debt settlement programs help consumers by reducing the principal on the debt. Consumers must have a minimum amount of unsecured debt to participate in this program. These companies have consumers begin to put money aside monthly in their own designated savings account and when there is enough to pay off at least one account the company begins to work out a settlement with the creditor. That settlement can either come as a LUMP payment, meaning one payment or a TERM payment, meaning a payment, which takes place in installments over the term of the loan. Generally, these Debt Settlement companies are for-profit.

Consumer Options

When consumers find themselves in financial hardship, they have four categories of alternative courses of action.

1) Chapter 7 or 13 bankruptcy ? This has a negative effect on consumer credit, can hurt the consumer's chances of obtaining work later on and these bankruptcies stay on credit reports for ten years.

2) Debt Relief Programs ? This includes both consumer credit counseling services and debt settlement programs

3) Additional Financing/Other Financing ? This could include an additional home equity line of credit

4) Repay the loan on the original terms

Without the consumer doing anything, there is a general process that all creditors tend to use. If a consumer has not paid their debt for thirty days, then the creditor sends the credit bureau a notice showing delinquency. This notice is then sent out every 30 days after that until the account is paid. In this time frame, interest rates are likely increased because of late/missed payments. Some creditors may give grace periods to work with the consumers, but the consumer's credit scores will still suffer. Debt settlement will negatively affect the consumer's credit score.

After six months of no payments, the account is usually sold to a collections agency. The collections agency usually buys the account for pennies/dimes on the dollar. Unfortunately, collections are also reported to the consumer's credit reporting agency and will negatively affect their credit.

In addition, creditors always have the option of issuing a lawsuit against the consumer in order to try to collect debt. This doesn't usually happen because it costs the creditor so much money and many times is unsuccessful, but there are always exceptions and many times the creditor will threaten this course of action.

How Does a Debt Settlement Program Help?

There are three steps in the Debt Settlement Program that get consumers to graduation:

Step 1: Program Advisors work with consumers to arrange an affordable "Debt Settlement Program set aside plan" (please note that this can be called different things for different companies). This is determined by assessing consumer's specific situations and their ability to set aside funds. This program allows consumers to save in their own account. The consumer can remove the funds from this account without penalty except for the money owed to the Debt Settlement Program. A great selling point for this program is that it is teaching the consumer to begin to save and set aside money and save each month.

Step 2: Once the consumer has saved enough money in their savings account (typically, at least 15% of at least one of the enrolled debt), then debt relief will begin to work with the creditor to work out a settlement. Very often it takes 6-12 months for the consumer to reach this step in the process.

Step 3: Once a settlement has been reached with a creditor, a settlement letter is obtained in writing from the creditor and the consumer is advised by the debt settlement company on how to properly disburse the funds from their account.

A consumer graduates the program upon completion of settlements/payment plans on all accounts. A certificate and all settlement letters are given to the consumer for their records.

Facts Regarding Debt Settlement Programs

(Much of This Information Must Be Gone Over With the Customer When Signing The Consultation Checklist Attached Below)

Debt settlement companies NEVER tell consumers to stop paying monthly payments to creditors. In fact, they advise consumers that doing so can result in late fees, interest accrual, and/or legal action. Customers who are able to pay their monthly payments may not be the right fit for the debt settlement program because of the negative effects it may have on their credit.

Debt Settlement companies are not responsible for making monthly payments to creditors. It is the job of the debt settlement company to encourage consumer savings

which are set aside monthly for the customer until there is enough money to work towards a settlement with the creditor.

Creditors will continue to make efforts to collect on delinquent accounts while consumers are enrolled in the debt settlement program until the account has been settled. This includes phone calls, letters and possible legal action. No debt settlement company can stop this from occurring. There are rules concerning how far a creditor may go with these actions. As a sales consultant, you can advise the consumer to check with FDCPA for rules and regulations on collection activities.

Lawsuits may take place during the collection process. The risk of law suit increases with the amount of time the account has been delinquent. The debt settlement company will try to settle the account prior to the court date, but there is no guarantee to the consumer that the creditor will settle. In the event of a law suit or any legal matter, it is always recommended that the consumer seek the legal advice of an attorney. The debt settlement company is not a law firm and does not practice law.

Although the debt settlement company will strive to achieve a savings of 60% on the enrolled debt, they do not guarantee this to the consumer because the creditor has ultimate say in this figure.

There are times when the creditor will not work with the debt settlement company. If this occurs, the consumer is immediately notified and the consumer has the option to restructure their arrangement to not include that specific debt. Debt settlement companies can never guarantee that a creditor will work with them. Debt Settlement is not free. There are costs associated with the service. Debt settlement fees are performance based. Fees are collected based on a percentage of the actual savings of the individual debts enrolled, typically 35%. For example, if a $1000 debt were enrolled, a 40% settlement were reached, the savings = $600. The fee is based on the $600 savings.

The consumer has a right to rescind on their contract, though the actual time period will vary by company, state and federal law, from the date of initiation (the date the client agreement was signed) it is typically three days.. This notice must be given in writing

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