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Debt settlement adviceConsumers often forget their financial limitations when buying some asset or object that they desire. At times, it may simply be lack of skills for such decisions. At other times, it may be uncontrollable desire. Quite often the debts contracted reach insurmountable levels, bringing in a deluge of calls from creditors. It is very difficult to come up with a rational decision amidst the worry and harassment. Seeking advice from an expert who could come up with some logical solution is a right step at this juncture.
There are many debt settlement consultants:
Basically debt settlement advice involves negotiations with the creditors to compromise on their dues to a certain level. In addition, the sources of funds of the debtor are re-examined to locate if there is any scope to increase cash inflows.
A stepwise analysis of the debt management and settlement advice procedure is presented.
a. Assess total assets and liabilities of the borrower;
b. Study the assets to identify if there is any scope for increasing earnings. If so, assess whether such earnings will adequately supplement the monthly payouts.
c. If not, then check whether mortgaging, or extending mortgage on an asset can generate additional funds. Home equity loans, home equity line of credits, and refinance on home, are three main types of mortgages that are considered at this point. However, other properties like stocks, gold, etc., can also be mortgaged. Assess whether there are any cheaper sources of finance, for example banker may be charging more rate of interest than some credit unions for same mortgage. And credit union may be willing to give a larger amount of loan when compared to the banker.
d. If so, assess how many costlier (i.e., debts that carry higher interest rates), can be cleared with these funds. At times negotiation with credit card companies helps. If the credit rating is good, then it would be worthwhile negotiating down the credit, or switching or threatening to switch to other companies.
e. Assess whether the monthly supplemented payouts will cover all the revised monthly dues, i.e., including the new mortgage installments and excluding the dues towards costlier debts.
f. If so, then mortgage the asset and do the needful.
g. If not, then consider if any other asset can be sold to generate some more funds.
h. If there are some assets that can be sold, assess the realistic sale value of these assets.
i. Add this value to the amount that can be raised by mortgaging assets. Check how many debts can be cleared.
j. Once again assess whether monthly supplemented payouts can cover the reduced monthly dues.
k. If not, then, consider calling a meeting of the unsecured creditors.
l. Prepare an estimate of their dues and have them endorse them.
m. Check for validity of claims duly keeping in mind the statute of limitation.
n. If it is possible to repay the amounts by spreading the outstanding amounts over longer periods, suggest such options.
o. If not, then assess whether lowering of interest rates will help the monthly supplemented income cover the monthly installments. If so, request the creditors to lower interest rates also.
p. If it is still not possible to repay the outstanding amounts after all these measures, then seek a write off of some part of debt that is to crystallize at a future date, in return for immediate payment. In other words, negotiate a discount on debt.
Discount on debt:
Any discount being sought on debt should be acceptable to creditor. Otherwise, there can be no debt settlement.
Creditor?s perspective would be:
a. How much can be generated from second mortgage or loan enhancement?
b. How much can be generated from sale of other assets?
c. How much is the total indebtedness?
d. How much is the weight of each such indebtedness?
e. If the debts were to be repaid by seniority, where he, she or it would stand? And how much would be receivable.
f. If the debts were to be repaid by their weight in total indebtedness, how much would be received?
g. If the debtor files for bankruptcy, what would be official liquidator passing down? What will be the charges of official liquidator?
h. If the debtor files for bankruptcy, when will the amounts be received, if at all? And how much would this amount be equal to after setting off interest for interim period.
i. How much would be the loss, if at all, that would have to be absorbed, if interest rates are brought down?
j. What would be the implications of extending time for repayment?
k. Is the discount being asked much higher than the likely loss in bankruptcy filing?
l. Is there another way to mitigate losses? If so, what?
m. What would be the costs of legal recourse?
After weighing pros and cons, the creditors generally agree to offer some discounts on their debts. Creditors are open to such discounts as long as it is only the interest and or profit component that is being wiped away. If the amount of discount asked exceeds these components, then the creditors are genuinely at loss. This brings their focus on borrower?s behavior. Creditors would be more amenable to let go part of their debt, if the borrower had unmanageable debts because of circumstances beyond his control, like natural disasters, family health, etc. However, creditors would not be as magnanimous to an extravagant debtor.
Debt settlement advice, therefore integrates the debtors, and creditors perspectives to arrive at a logical solution. Eventually, debt settlement may entail almost 50 percent write off of creditors' dues. And some professional charges for the agency, if it is a for profit agency. Therefore, debtor must consider this aspect before seeking debt settlement. Debt settlement involves surrendering monthly surpluses directly to such agency, and letting them negotiate down the debt. Any debt settlement solution must essentially ensure that creditor's are not unduly punished. That is, the debtor should not get away with attempts to cheat or deny the unsecured creditors their dues. Other Articles
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