1 In Home Sales Training Manual Debt Settlement Program
2 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.
3 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:
4 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
5 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
6 and be postmarked no later than the date given in the paperwork. Consumers may choose to hold their savings account at whichever savings institution they prefer. Most recommend using Global Solutions and Noteworld Servicing Center. They have ultimate discretion over these funds throughout the length of the program and will always have the authority over the direction of payment to creditors. Once the fully signed checklist is signed and notarized, it takes on average, 6-12 months for the consumer to save enough to settle their first account. Consumer s debt forgiveness may be taxable income and debt settlement is not available in every state and in some states it must be handled by a licensed attorney Requirements for Sales Representatives - Always dress and act professionally on every appointment - Must wear the name tag sent with the settlement package - Independent Representative Agreement must be signed for EACH settlement - Welcome Package must be gone over in detail with questions answered - Sign and notarize (as needed) documents in package - Have checklist signed
7 Frequently Asked Questions 1. Am I a good candidate for the Program? If you are behind, late, or in default of credit card obligations, the Program may be the best option for you. By answering a few questions about your financial situation, a specialist can determine your debt settlement needs. Our goal is to negotiate your debts and have those debts settled in less than 3 years 2. What information do you need to determine if I qualify for your program? We will only need the balance, your first and last name, and the creditors names on all of your credit card and unsecured statements. You can black out all sensitive information like SSN, account info, and address. If you can't find all your statements, you can access your credit on numerous on-line sites for free. It will take 5 minutes to run and then you can fax the report. Again, you can black out all sensitive information like SSN, account info, and address. You will NOT need any income documentation or equity to qualify for this product. 3. How will my credit be affected if I use the Program? Your Credit will definitely be negatively affected.* While participating in the program and after completion, the account will appear on your credit as settled for less than full value. It will appear as if you handled the pay off in debt on your own, which will look more favorable for you. But due to the nature of the program, it is highly likely that your credit will be negatively affected. * Disclaimer - Individual results may vary and are dependent on successful completion of program and ability to save funds DS companies do not assume or pay any debt, nor does it provide legal advice or offer credit repair. Read and understand the contract terms before enrolling. 4. How long will it take to complete the program? Our program is designed to take 2 to 4 years to complete. 5. Will my credit cards be included in the program? Our program is designed to specifically settle your unsecured debts, including credit card balances. 6. What if accounts won't settle? Will they sue? Creditors do have the legal right to pursue a debtor in court of law to collect the debt. Usually this is a last resort after much effort to collect the debt without response or satisfaction. Taking a client to court is a costly and time-consuming activity which most creditors would prefer to avoid if given an alternative. If a creditor does take legal action, we continue to try and negotiate a settlement or
8 payment plan. While we do not offer legal advice and cannot appear in court on your behalf, we can continue the negotiation process.* * Disclaimer - Individual results may vary and are dependent on successful completion of program and ability to save funds. ClearOne Advantage does not assume or pay any debt, nor does it provide legal advice or offer credit repair. Read and understand the contract terms before enrolling. What is Debt Settlement Program? Debt Settlement is the preferred method consumers take when delinquent on their payments but trying to get out of debt. Debt Settlement companies help you with debt settlement by negotiating with your creditors to settle your debt for an average settlement of 60% of the current balance. For example: If you owe $10,000 on a credit card, our trained negotiators can typically settle the debt for $6,000; a savings to you of $4000. A Debt Settlement plan will also consolidate your payments into one low monthly payment that will have you debt free in less than 36 months. Here is why. If you are behind, your creditors have added hundred if not thousands of dollars in frivolous fees on top of increasing your interest rates. If you were not able to maintain the original agreement I don t understand why they would make it impossible for you to get back on track. If you are current on your payments, the creditor will not agree to settle your debts. Therefore, you must establish some leverage with your creditor by allowing the accounts to go delinquent for at least 120 days. At 120 days, we are able to negotiate your debt and we can typically reach at settlement for 70% of the balance. At 150 to 180 days of delinquency, settlements are usually obtained at 60% of the balance. These are the type of bills/debts you can enroll into a debt settlement plan: Medical Bills Credit Card debt Collections Accounts Personal Loans Charge Off Accounts Repossessions Any Unsecured debts 7. What is a Debt Management Plan? A Debt Management Plan (DMP) is a program offered by a company that is owned or directly paid by the credit card company. This is a form of collection
9 agency that claims that they represent you the consumer, but in reality have a conflicting interest with the relationship established with the credit card company. Organizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan (DMP). In a DMP, you deposit money each month with a credit counseling organization. The organization uses these deposits to pay your credit card bills, student loans, medical bills, or other unsecured debts according to a payment schedule they ve worked out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees if you are repaying through a DMP. You need to be aware that if payments to your DMP and creditors are not made on time, you could lose the progress you ve made on paying down your debt, or the benefits of being in a DMP, including lower interest rates and fee waivers. Although creditors may have forgiven late payments that you made before you began the DMP, the creditors may be unwilling or unable to do so if payments are late after you have enrolled in a DMP. If you fall behind on your payments, you may not be able to have your accounts re-aged again (reported as current), even if you start a new DMP with a new counselor. That means your credit report will have late marks and you will rack up late fees, which, in turn, will lead to more debt that could take longer to pay off. If payments are late because the organization handling your DMP has failed to make scheduled payments, the consequences can be just as devastating as if you failed to make payments to the DMP. If you do not act quickly to make arrangements with your creditors, you could incur late charges that increase your debt, lose the lower interest rates associated with the DMP, and have late marks on your credit report. The balance will continue to accrue interest on your accounts but at a lesser rate, typically between 8-10%. The entire balance is paid in full plus interest and the length of time is usually between 5 to 7 years. You will pay an up front fee, along with a monthly service fee. Typically, your payments will stay about the same as your current payments but instead of taking years to payoff, you should be completed in about 7. The average consumer will pay back approximately 130% of their debt with a moderate adverse impact on their credit score. If still you believe debt management is your best solution, you may apply here and a Certified Financial Advisor will assist you with the process. 8. Is Debt Settlement the same as Consumer Credit Counseling? No, a Debt Settlement program and Consumer Credit Counseling is not the same thing. The goal of debt settlement is to eliminate your debt by negotiating with your creditors a one time payment to settle the debt. With debt settlement, the consumer is able to eliminate about 40% of the debt with this type of Debt Settlement plan. Consumer Credit Counseling does not try to eliminate debt, instead, Credit Counseling will setup a debt management plan to reduce your interest and lower you monthly payment.
10 The biggest downside to a debt management/ Credit Counseling plan is the time that it takes too long to get out of debt. Over 70% of all consumers who enroll with a credit counselor cancel their plan before they finish. The Debt Management plan will have a lower payment compared to the minimum payments on your credit cards, but then you have to pay the credit counseling fees and your payment is typically higher than what you are currently paying. The average payment plan takes 5 to 7 years and the interest will continue to accrue on the credit cards the entire time. Although Credit Counseling Services advertise they can reduce your interest rates, there is no guarantee that the creditor will agree to lowering your interest. When they are able to reduce the interest, it is only for 6 to 9 months and then the rates are raised back to the maximum allowed by law. When you sign up for a Debt Management Plan, the company then has to put a negative mark on your credit report showing everyone that you had to get Debt Management help. This will remain on your credit report for 7 years after your last payment with the credit counseling service. This mark is looked at by creditors the same way they look at Chapter 13 Bankruptcy. With Debt Settlement, you are able to set up a payment plan that will consolidate all of your bills and have you debt free within 36 months. Debt Settlement can have you debt free in half the time it takes for a Debt Management plan. Since you accounts are closed out, the interest and fees will also stop. The advantage to choosing a debt settlement plan is that it will eliminate your debt by 40-60%. This is the most practical way for a consumer to get out of debt with the least amount of consequences. 9. Can I Settle my Debts by my Own? Sure you can, just like you can defend yourself in a criminal trial. Would you rely on yourself to defend your name if you had to go to court on murder charges? So why do you think you can defend yourself against creditors that have the right to sue you? When you think you can settle your debt on your own, you should first remember that you got yourself into this hole of debt. I bet you even had different plans on how you were going to dig yourself out before it got this bad. It is understandable that you do need help with your debt problem, you are not a professional and must likely do not have the financial education of our staff and resources that our Debt Settlement Compnay has. Consumers who wish to avoid bankruptcy and get out know they need a debt management plan that is practical and effective. Not just anyone can become a professional Debt Negotiator. Debt negotiators go through extensive training learning state and federal laws, credit industry practices, the process of arbitration, and they have a developed skill for the art of negotiation. Furthermore, Debt Settlement Companies have taken the time to develop key relationships with creditors that allow us the ability to work with the
11 same individual every time. These relationships are a key part to the amount of savings we able to get our clients. When Debt Settlement companies contact creditors for settlements we usually contact them on the behalf of hundreds of clients; this is known as buying power. Since we are able to settle many hundreds of thousands of dollars at any given time, our clients get better settlement percentages because debts are not settled individually, they are settled in bulk. Collection agencies and creditors love to deal with individuals who are trying to settle their own debts because they know the majority of the time that the consumer has no idea what they are doing. There are many laws that govern the credit and collection industry and it takes several months to learn the laws and know how to identify when a violation occurs. Further, under laws such as the Fair Debt Collection Practices Act, Fair Credit Reporting Act, and Fair Credit Billing Act, validation letters, dunning letters, and requests for production must be drafted correctly. For an individual to set out and try to learn the process of simply writing the documents would take countless hours and would need to be under the supervision of legal counsel. It is very common for creditors to offer verbal settlements but never provide written documentation. Only after you paid the settlement do you realize that the creditors agent lied to you and you still owe the full balance. In the settlement agreement there must be specific terms on how the account will be reported to the credit bureaus. Most consumers believe that the collection agency will offer to remove the negative information from the credit report. That is not true. Legally, the debt is not allowed to be removed; that is not to say that it can not be done. On a credit report there are comments and codes. The only important factor is having the correct coded updated to reflect that they debt is paid in full. One of the most important pieces to the debt settlement game is developing relationships with an individual at each creditor s office. These relationships are so important because we are able to build rapport with our contact and when we go to contact them, they know that we are not playing debtor games with them. 10. How does debt settlement compare to bankruptcy? Filing for bankruptcy has many negative implications, and should be considered only as a last resort. Bankruptcy may seem to be the quickest solution to removing your outstanding debt and bankruptcy attorneys will tell you it will only remain on your credit for 10 years. Both Chapter 7 and Chapter 13 will represent a major negative mark on your credit rating and will stay with you for the rest of your life. Chapter 7 bankruptcy will stay on your report for 10 years and in the case of chapter 13 bankruptcy, the clock does not start ticking to remove the bankruptcy mark from your credit report until the chapter 13 bankruptcy plan is completed.
12 Bankruptcy can cost up to $1,200 to file and additional attorney s fees. In Chapter 13 bankruptcy you will typically have to pay back 80%-90% of your debts plus legal fee s. Bankruptcy may affect your ability to get a job. Bankruptcy will likely result in higher interest rates on future loans and credit. Carries a negative stigma, mental stress, and other burdens. Bankruptcy is a legal proceeding that is entered into court records that will never be deleted. Many loan applications, employment applications, insurance applications, and other everyday forms ask "Have you ever filed for bankruptcy?" Even if the bankruptcy has fallen off your credit report, to answer this question untruthfully is considered a federal offense. Which means bankruptcy will follow you for the rest of your life. If you are currently considering bankruptcy. 11. When I consolidate my bills, who pays my Creditors and when? When enrolled in a Debt Settlement program, the company never makes payments directly to the creditor. The payments always come from the client s personal savings account. Debt Settlement companies are protecting their clients from having a specific comment stamped on the consumers credit report. If Debt Settlement Company made the payments for you, we would have to update your credit report with a comment that you are enrolled into a Debt Management Plan. If you have this mark placed on your credit report, you will have a bad credit score for 7 years or until this is removed from the credit bureaus. Debt settlement is not a loan and it is not a monthly pay your bills service. We work with your creditors to negotiate a settlement to reduce your debt where you can afford to make your payments. Each month you make your monthly payment according to your debt settlement payment plan. The savings account will always remain in your control the entire time you are enrolled in the Debt settlement program. 12. Do I have to include all of my debts in my Debt Settlement Plan? Many times consumers will ask us if they must enroll all of their debts into a Debt Settlement program after they learn that all of their accounts enrolled will be closed with the creditor. The reason the accounts are closed is to allow the consumer a chance to recover from their debt and start over without having to file for bankruptcy. No, you do not have to consolidate all of your debts if you do not want to but most of the time that is the smartest decision. Sometimes, we will recommend that you pay off certain debts yourself. This is recommended when the balances are relatively small, when your credit will benefit more by paying the balance in full by yourself, or when it is in your best interest. You can choose which accounts to enroll in the program but it is always best to enroll all of your debts in the beginning. If you have two or more credit accounts with the same company, then
13 you must enroll both of the accounts or not enroll either. This is called cross collateralization. Basically, a creditor will not understand if you are able to pay one account on your own and not the other. The creditor feels that since you have the ability to pay one debt, then you will have the ability to pay on the other account as well. If you feel that you need to keep a credit card for emergency purposes, you may do so but first, let a Debt Specialist show you a better option for those potential emergencies.