Debt relief service

Debt settlement is a debt relief method by which agreements are made between credit card companies and the representing settlement agency, whereby the total amount owed is reduced by as much as 60%. A credit card must be in default before consumers can take advantage of these services, as creditors are more willing to negotiate. A reduced balance, after all, means that the credit card company will not get all of the money they had anticipated. On the other hand, creditors would much rather get paid something toward the debt than nothing at all, such as in the case of bankruptcy.

Like credit counseling, there are some positive benefits related to settling one’s debt in this manner. The total amount to be repaid is dramatically reduced, saving consumers money. Naturally, since there is less money to be repaid, getting out of debt is much easier and quicker. Settlement is a popular debt relief method for this reason. In addition, the road to debt freedom takes less than two years, unlike credit counseling, which could take as long as five years.

While paying down a smaller balance and getting out of debt quicker are positive aspects of settlement, there are a few negatives. While participating in a debt settlement program, consumers will find their credit scores negatively impacted, primarily due to continual past due remarks. Even though the consumer is making monthly payments to the settlement company, their credit accounts will consistently remain past due until paid in full. There is also a small risk of being sued. While most credit card companies will not attempt to file a suit against any settlement participant, a few small, unscrupulous firms will take advantage of the opportunity. Thankfully, any damage to one’s credit report is temporary and fixable.

The primary appeal of debt settlement is the savings. Slashing one’s total debt in half is very enticing. Consumers will wind up owing much less than they would have while paying the minimum payments. On the downside, their credit will be affected, and they will continue to receive collection letters or phone calls.

Is debt settlement right for you? The decision depends on individual financial circumstances. For someone with more than 10K of debt and who is having difficulty staying current on all accounts, then settlement might be the best option. After all, the accounts are already past due, and likely will remain past due. Why not reduce the overall total balance and get out of debt quickly?

By: Hector Milla

In a recent letter addressing 176 collection agencies in Ontario the Registrar of Collection Agencies appears to be making a change in the way Collection Agencies in Ontario can do business.

In the past collection agencies in Ontario and their lawyers have been successful at collecting money from debtors with “draft” statement of claims. This tactic was effective because it is inexpensive and scary to most people that don’t know any better.

A statement of claim is a court document you must complete and register with the court to start a legal proceeding against someone.

Usually the drafted claim is accompanied by a letter typed on a lawyer’s letterhead and signed by the lawyer. The covering letter will often suggest that the debtor has 10 days to pay their debt by certified funds otherwise a Sheriff may serve the claim upon them. The consequences of a judgement are usually spelled out and it often includes wages being garnished, bank accounts seized and your other property being seized or sold.

“Draft” statement of claims are frightening to people in debt because they look like an official court document suggesting the debtor is about to be sued; but in reality they aren’t worth the paper they are written on because they aren’t registered with the court and in draft form only. It’s basically an empty threat.

At Total Debt Freedom we negotiate a reduction in our client’s debt by 40-70% so we often deal with collection agencies and their attorneys when settling a debt. Draft statement of claims have been a huge concern for many of our clients and we have seen every possible version used. In our experience, only a very small portion of statement of claims sent to debtors are ever actually registered with a court, the majority are in draft form only.

Brian Pitkin, the registrar of the Collection Agencies Act in Ontario states “the practice trades on the expectation that debtors will be unknowledgeable about court processes, and interpret the “draft” statement of claim as a greater commitment to pursuing the matter in court then actually exists; it relies on the debtors not recognizing that the document enclosed with the demand letter is little more than a boiler plate with little investment in time and thought”.

Pitkin finds this collection tactic objectionable and stated that “the practice of enclosing a draft statement of claim is both deceitful and misleading”

This issue is clearly on his radar screen and he warns that further complaints on the matter could result in an order to the collection agency to stop under subsection 2 of section 21 of the Collection Agencies Act by the Registrar himself.

Will the practice of draft statement of claims stop? Maybe; collection agencies are crafty and may find a way to continue using a modified version of these effective collection tactics.

Dealing with collection agencies can be quite stressful if you are unfamiliar with their collection tactics. If you are using a debt help company be sure they are competent enough to differentiate misleading and deceptive collection tactics from the real threats.

By: Richard G Cooper