Debt settlement, sometimes called debt consolidation, is the process of negotiating with creditors to reduce the actual principal balance of the debt. In the debt settlement industry, average negotiated settlements are around 50% of principal balance, with lower settlements seen by many consumers. For an overview of your debt relief choices, including debt settlement and CCCS, read Debt Relief Options: Which is right for you? to learn more.
Creditors will not negotiate on a current account. Creditors will negotiate, generally speaking, when an account is charged off. Charge-off occurs 120-180 days after the last payment. To get to the charge-off point, a person enrolled in a debt settlement program will stop making payments on enrolled accounts. In other words, the debtor (the person enrolled in the debt settlement program) defaults on the contract with the creditors.
When a debtor defaults on a credit contract, the creditor has the right to file a lawsuit for breach of contract. Lawsuits against people enrolled in debt settlement programs occur in roughly one in eight or nine instances. Here, unfortunately, you were one of the unlucky eight or nine.
Consult with your debt consolidation service provider and explain the situation. Ask how they will respond. The provider will most likely accelerate its efforts to reach a settlement with the creditor and reach an out-of-court settlement. Ask your spouse to make a copy of the summons and send it to the legal department at your debt consolidation service provider immediately. Stay in touch with your debt consolidation service provider to be informed of the status of the lawsuit.
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