Recover the File
Where You Were After the Company Dropped Out
If you were in a debt settlement program and it fell apart, slow down. First, you need to know what you got from the settlement you were in, starting with whether you still face any lawsuits with deadlines to act by. Then, find how much of what you paid the settlement company actually got to the lender you paid to settle (there can be some surprises). Also, write down every lender you needed to settle, and whether or not that lender has been settled. Finally, find the proof that each settlement the company did has been finished. This will give you a picture of where you were after the company dropped out. With that clear, then consider how to finish the work of settling the remaining lenders.
Before you talk to anyone, know whether you have a lawsuit with a deadline. If you receive court papers, keep them, write down how and when they arrived, and respond. Do that no matter what anyone tells you and whether or not you paid a company to help you. Talk to a lawyer to consider your best options before the deadline comes, because ignoring lawsuits can get you results in the court you did not want.
You did not pay the lenders, you paid a middle man that told you they were settling your debt. Look at your old statements, papers, receipts, cancelled checks, account records and contact everyone who knew your account. Add it up.
Also, pull out the program contract the company had you sign. That will tell you the entire deal between you and the company, and what fees they can keep in the end. By federal law, if your program was sold to you by phone, the company cannot take fees until they settled a debt and you made a payment on it. When you leave, the company must give back all the money in a dedicated account within 7 working days, minus fees it earned already.
No one can sell you settlement services by phone without telling you all the fees you will pay, how long it will take to get results (settlement), and how much in savings you need before each offer. If they relied on you not paying creditors, you needed a warning that you can be sued and your credit can take a hit. If the company did not do that first, it matters now.
Who is left with a lawsuit? Who is threatening to sue? Who was settled? Make a list with names, addresses, amounts, deadline dates and any important dates to move by. This helps know what debt you must handle right away. After determining whether the lenders sent you to collections or filed a lawsuit, call the lenders and see whether a debt settlement has been made and whether they have paperwork to show it. That call will let you see just what work the company did before stopping.
For each settlement you feel the company finished, you must gather proof. First, start with the signed terms and payment confirmations you made. Then, look for releases from the lender. It is a very good idea to call each lender back to confirm that all payments have been made, and that all documents that need to be completed, like a UCC termination, have been filed. Confirm in writing when the automatic withdrawals will stop, because some lenders do not send the releases or satisfactions until the end of the last payment.
Once you put together your existing documentation, double check the work the company did, and get current information from the lenders, you will have a great file with clear information to make decisions. That file should include a copy of the entire deal, including the contract, the guarantees you signed, the amount you were given, the amount you agreed to pay, your payment history, the balance the lender claims you owe, your bank statements and revenue records, default letters you got, any UCC documents filed, any court notices, any new settlement offers the lenders made, and any other notes you made along the way.
Settlement Terms Can Still Be Worked Out
The choices here are a settlement, a reworking of the payment schedule, a reconciliation, and a legal defense. Even after a lawsuit is filed, however, settlement terms can still be worked out. Be prepared to need your own settlement, a new payment structure, or a reconciliation for each funder involved. In other words, one settlement with one funder is not likely to end lawsuits by the others.
In some programs, you will be told to stop payments or block any ACH debits. Since each agreement has its own clauses on what is a “default”, stopping the payment or having the ACH decline by accident can become a default. When that happens, the funder could call the full amount due in a notice of acceleration or payment default, add additional fees, notify every customer affected, go after the guarantor, or sue you. Don’t expect this alone to bring a settlement. Whether all of the penalties and acceleration demands can be enforced is another question, and it should be put to someone reviewing the agreement. Also, if there was a major change in revenue, the agreement may have a reconciliation provision that can be used here.
Before hiring anyone to help, be sure you know who will represent you in Court, who will negotiate settlements, what services and fees are covered. Will the negotiator be a lawyer? Will the negotiator also defend in court, or act in response to a lawsuit? Just because you are in a “debt settlement program” does not mean you have legal representation if you get sued.
The final settlement amount is not the only part. Who and what is released must be set out. Then make sure you understand every installment, when payment is due, and what happens if you miss an installment. Automatic withdrawals should be set out, with when they will stop. Keep proof that each step of the settlement process has been done.
A Tax Bill
Ask your tax advisor whether settling your loans can create a tax bill. If you get a 1099-C because a lender let go of $600 or more in debt, that could add to your taxable income unless a special rule like insolvency or bankruptcy applies. If a funder keeps trying to collect the same debt even after it issued a 1099-C, the IRS says the debt may not be considered canceled, so it may not count as income.
Money woes call for cool heads. Hold onto all your documents, review them, and confirm them with the lenders involved. If you are being sued, the first call should be to a lawyer before deadlines slip by. And finally, know what it will take to finish a workable settlement.