The Debt Settlement Negotiation Timeline

Many people mistakenly believe that the debt settlement negotiation process begins as soon as they sign an agreement with a debt settlement company or debt lawyer. However, that is usually not the case.

The fact is that unless you are already 6 months behind in your payments to your creditors, nothing happens right away. You see most creditors, especially credit card companies, won't even begin to negotiate any type of settlement until it has been at least six months since your last payment to them.

Now be careful not to misinterpret that last statement. I'm not saying that there is some hard and fast rule that as soon as you stop making payments for six months a credit card company will all of a sudden begin to negotiate with you. What I am saying is that in order for the debt settlement negotiation process to begin, both sides must be motivated. We know that you are motivated, but it takes time for your creditors to get motivated. And nothing motivates credit card companies more than not receiving any payments for about six months.

What Happens Before The Debt Settlement Negotiation Process Begins?

Many debt settlement companies will tell you that as soon as you sign onto their program they will immediately contact all of your unsecured creditors and let them know that you are seeking to settle your debts. While this may be true, most creditors, as I mentioned above, are not yet motivated to begin any debt negotiations.

The truth is that during the first 6 months that you are in a debt settlement program not much happens. Well, at least not much happens between you and your creditors in terms of a negotiation. What does happen during this time frame is that instead of paying your creditors, you are putting money into a separate bank account, the proceeds of which will be used to settle your debts when the time comes.

By the time your creditors haven't seen a payment for 6 to 8 months, they know that you are serious about settling your debts and will begin to negotiate with you or your representative. The entire debt negotiation timeline can last as long as 36 months, with the bulk of the negotiating taking place in the later two thirds of that timeline.

Why Is The Timing Of Debt Settlement Negotiation Fees Controversial?

Because of the fact that most of the fees that you will pay a debt settlement company are paid within the first 12 months of the program, and as we discussed above, not much work takes place during these 12 months, a potential problem arises. In essence, the debt settlement company or debt lawyer receives the bulk of their fees before they have done any work. Unfortunately for consumers like you and I, most debt settlement companies have adopted this type of fee structure. If at all possible you should try and find a reputable company that structures their fees more on performance, ie. once the service has been provided. (Update: As of October 2010, it is now the law that firms who use the telephone to solicit a new client cannot charge fees until a debt is settled, not before.)

No matter what company you do choose to represent you, make sure that you are crystal clear on exactly how the debt settlement negotiation fees are structured, when they are due and what type of performance guarantee they offer. And do all of this before you sign on the dotted line.