Why Do Debt Settlement Programs Have Unpredictable Outcomes?

Dave Jones: A Typical Debt Settlement Strategy

Dave has $45,000 in credit card debt spread across five cards ($9,000/card). His monthly minimum payments are higher than he can afford. He signs up with DebtSettlers, Inc. ¹ to help him settle his debts. Instead of paying his creditors, Dave begins to send his monthly disposable income to DebtSettlers. In six months, Dave has amassed $10,000 in his DebtSettlers account. Dave is receiving daily calls from his creditors, even though the creditor knows that DebtSettlers is representing Dave. DebtSettlers attempts to negotiate a small settlement amount for each of his credit cards, using the $10,000 to pay them all. At the end of the process, Dave still has a mortgage on his underwater home, and DebtSettlers has managed to settle three out of five of his credit card debts. The remaining two credit cards have filed lawsuits against Dave.

In this scenario, Dave may have been better served by filing a Chapter 13 bankruptcy or a Chapter 7 bankruptcy, depending on the equity in his home and car. For instance, if Dave only has $5,000 of equity in his home, he could likely file a Chapter 7 bankruptcy and use the Illinois homestead exemption to protect his home from liquidation. The Illinois homestead exemption allows every person with an ownership interest in a home to protect up to $15,000 in equity from liquidation. A married couple would have a $30,000 exemption. However, if Dave's home is deeply underwater, and it seems that he could complete a Chapter 13 plan, a Chapter 13 may provide more tools to restore some equity in his home and potentially eliminate his credit card debt by paying a fraction of the debt owed over time. If his disposable monthly income is low enough, he can settle his debts for less than 10% of the total amount owed.

DebtSettlers is a fictitious company and is not intended to represent any specific existing entity or individual.

If you are in a similar situation and could use some help, contact us today online or by telephone at (312) 313-1613 to speak with an experienced Chicago bankruptcy attorney.

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