Debt Settlement Programs and Credit Card Debt

Question:  I recently signed with a debt settlement company to clear my debts but they said they want to wait to have a lump sum to pay creditors in a 36 months program. I own my home and estimate that there might be about $20,000 in equity in our jointly owned house. I am married and have a $33,000 debt in credit cards all in my name.  My question is can they seized my things or can i lose my house while we wait?

Debt Settlement – The Wait and See Approach

The way most debt settlement programs work is you save money each month, until you have enough money to make settlement arrangements with the creditors.  So, if you have $33,000 in credit card debts, the debt settlement firm may decide that you need to settle that debt for $20,000 and you need to ‘save’ with them $555 each month, it will take 3 years to save the money (and this is likely before fees).  Once the funds are set aside, the debt settlement firm will approach each credit card company and offer them a share of the settlement.

The problem, as you have correctly identified, is that it will take three years before you have saved enough money to propose the settlement. So for the next three years the credit card companies can phone you, and even take you to court to get a judgment against you. Plus interest and penalties are being added to your account,  increasing your overall debt. If they get a judgement they could garnishee your wages, or put a lien on your home. Debt settlement does not provide you with creditor protection.

The debt settlement program may be successful.  However, you do run the risk of legal action over the next three years.

You have two choices: One option is to continue with the debt settlement program, and hope that no creditors take action against you.

The other option would be to file a consumer proposal.  A consumer proposal is like a debt settlement program, in that you are making a payment each month to deal with your debts.

The big difference is that as soon as the proposal is filed, you are protected from your creditors.  They can’t take legal action against you.  For that reason a consumer proposal is generally a better option.

The best way to determine what solution is best for you is to get an evaluation of your situation. Contact an advisor today and find our which option will work for you.

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