Debt Settlement Programs - The Attorney Based Model Vs The Standard Debt Settlement

May 11, 2010 - PRLog -- There are various debt settlement programs that operate in the market and claim to help the consumers to get out of debt in the shortest possible time. The two most common form of debt relief programs are attorney based model and the standard debt settlement method.

The attorney based model can actually be mapped back on the traditional method of filing bankruptcy where the consumer has to apply for bankruptcy under the amended bankruptcy laws coined by the Federal government. This method is difficult and extremely time consuming because once the consumer decides to file for bankruptcy; he or she has to contact an attorney who deals with bankruptcy. The attorney will then submit all the documents and necessary information to the court of law. The attorneys in the court will go through the case and then call the consumer for a credit counseling session. There, the consumer will be judged on various grounds like the income and the expenditure habits and the financial liabilities that he or she has. If the counselors think that the consumer can repay the debt in full with a tight and modified budget, the debtor will not be allowed to file for bankruptcy. However, if the counselors think that the consumer is in serious trouble, he or she will be allowed to file for bankruptcy. Upon successful bankruptcy filing, the credit score of the debtor will take a hit and the consumer will lose his/her credibility and the bankruptcy filing report will show up on the credit history for a period of 7 to 10 years during which the consumer will not be able to borrow any further credit.

Under the standard debt settlement programs, the borrower hires a professional debt settlement company which assigns a professional negotiator for the case. The negotiator advises the consumer to go delinquent. Once the consumer does do, the creditor waits for a period of 3-4 months and then sells off the debt to a collection agency for 20-30 cents on the dollar. It is then that the professional negotiator contacts the creditor and offers 40-50 cents on the dollar which is 100% ROI for the collection agency and at least 50% savings for the debtor. This happens with mutual consent and there are no legal hassles. However, the standard debt settlement process is deemed to be completely legal.

If you have over $10,000 in unsecured debt it may be a wise financial decision to consider a debt settlement. Due to the recession and overwhelming amount of people in debt, creditors are having no choice but to agree to debt settlement deals.

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