I just finished reading your article on legislation to restrict debt settlement firms. The information you presented accurately portrayed the negative allegations that were put forth recently. (See story.)
It ignored totally, however, any of the positive aspects of debt settlement, especially including the relationships we have with a number of members of your industry, the money we return to creditors and collectors each year and the countless thousands of consumers that achieve relief through debt settlement and ultimately avoid bankruptcy as a result of the service our members provide.
While debt settlement has not been embraced by a majority of creditors or collectors, many are now realizing, especially in these tumultuous economic times, that consumers in debt settlement programs are some of the most highly motivated consumers in their portfolios.
Many collectors, creditors and debt buyers have developed focused strategies to leverage debt settlement as an effective channel for collections and recovery and routinely work with many of our member companies in partnership to identify consumers able to settle their accounts.
When compared to other traditional channels such as contingency placement and legal recovery, debt settlement accounts routinely net back three to five times the liquidation rate of these other higher cost, less effective channels.
With over 158,000 bankruptcy filings during the month of March, a rate now exceeding almost 6,900 per business day in the U.S., and Chapter 7 bankruptcies now exceeding Chapter 13 bankruptcies, debt settlement companies provide a much needed option to help many of these consumers avoid the long term stain of bankruptcy on their credit report.
Many consumers report to us that they have worked in good faith with their creditors only to be unsuccessful in reaching a settlement. Many of these consumers were also unable to qualify for a credit counseling program. In return for their efforts, some creditors have deployed a strategy of litigating these same vulnerable consumers when it is discovered that they have enrolled in a debt settlement program, needlessly forcing thousands of people into bankruptcy each year.
In 2009, TASC [The Association of Settlement Companies] members alone settled $1.1 billion of debt, returning $460 million largely to creditors and collectors that already understand how effective debt settlement can be, while saving consumers $640 million of debt they could not afford to repay and sparing thousands from filing bankruptcy.
Total industry estimates are three to four times those amounts. While industry-wide that only equates to roughly 2% to 3% of gross chargeoff last year and approximately 6% to 8% of gross collections for the ARM [accounts receivable management] industry, for the tens of thousands of consumers who benefitted and ultimately were able to reduce or eliminate their debt and avoid bankruptcy, I assure you it meant everything.
The Association of Settlement Companies
Editor's Note: For a related story on collection strategies, click here.