Answers to your questions.
At New Era, we believe in full and honest disclosure regarding all aspects of our Debt Settlement program. The following responses to Frequently Asked Questions are provided to better assist you in understanding our service.
If you have additional questions or would like further information, please don’t hesitate to call us toll-free at (800) 527-4421. One of our professional representatives will be happy to assist you with a FREE no obligation consultation.
How does debt settlement work?
Debt Settlement works by negotiating a payment for less than the balance owed (principal) on your unsecured personal debt accounts. This is different from simply reducing the interest rate as with Debt Consolidation and Credit Counseling, which do not affect the total debt balance.
By negotiating the balance itself, Debt Settlement provides a much faster means of handling your debt. Most creditors are willing to accept payments of much less than the balance owed in order to close out an account rather than lose the entire amount in a bankruptcy proceeding.
Will this strategy work for me?
For individuals and families seeking an alternative to bankruptcy, there is simply no better option to get out of debt. But it won’t work for everyone.
Follow this link to find out if you qualify for a debt settlement program.
What happens to my credit?
Few people with debt troubles have perfect credit to begin with; and it is likely your credit score (usually called the FICO score) will decline during the program.
Regardless of your credit score, we recommend against applying for new credit while going through a debt settlement program. It simply doesn’t make sense to take on new debt while you’re trying to tackle your existing debt problem.
Happily, credit scores tend to improve quickly once a debt settlement program has been completed.
How much will it cost?
The amount it costs you to become debt free is dependent on a number of factors including: your credit balances, your ability to contribute monthly escrow payments into your program, the amount that can be negotiated from your balance and how quickly it is negotiated, and what fees your debt settlement firm charges you.
What are the tax consequences?
It is unlikely – but possible – that you will owe taxes on the amount of the debt forgiven by creditors. Here’s why.
Financial institutions are required to report canceled debts (the portion forgiven during settlement) over $600 to the IRS, and the debtor is required to report that as income on their tax return.
However, the IRS permits you to offset any “income” from canceled debts up to the amount you were “insolvent” at the time the debts were canceled. You are “insolvent” if you owe more than you own – in other words, if you have a negative net worth.
People who are deeply in debt generally do not have a positive net worth, so it’s rare to pay taxes on the forgiven debt balance. One exception is an individual with a high level of home equity, which might make the overall net worth positive and thereby negate the insolvency exclusion. However, this is the exception rather than the rule.
Keep in mind that these are generalities and not intended as tax advice. We recommend you discuss this with your accountant.
What about creditor calls?
No debt settlement company can realistically promise to eliminate all collection calls. However, we do understand the stress these collection calls can create and we recognize the importance of offering the support and expertise to help counteract potential collection harassment.
New Era provides our clients with recommendations for dealing with creditor calls.
What about lawsuits?
While creditors have the legal right to bring a lawsuit for non-payment of a debt obligation, such lawsuits are far less common than aggressive credit collectors would have you think. Most creditors would rather work things out amicably in a negotiated settlement than spend more money taking a customer to court (with no guarantee of being able to collect on a judgment). That’s why thousands of litigation-free settlements are transacted every month all across the country.
But, the worst-case scenario is that you could be required to pay a debt balance in full in the event of legal action by a creditor. This is little different from the starting situation most clients find themselves in, and again, it is a fairly rare occurrence.
Can my wages be garnished?
If you listen to some debt collectors, you might be fooled into thinking they will seize your very next paycheck unless you make a payment right then and there. But this is mainly an intimidation tactic.
Actual garnishment actions are relatively rare, and do not happen without advance warning. First, a creditor must bring a lawsuit, obtain a judgment, and then take an additional step to obtain authorization for the garnishment.
No one can take your paycheck without court approval, and you must be given notice of such court action through formal documentation. So don’t be fooled by one of the oldest collection tricks in the book.
Will I still be able to use my credit cards?
You will not be able to continue using any of the credit cards or other accounts enrolled into a Debt Settlement program. When you are negotiating to have creditors forgive half or more of the balances owed, they simply will not extend more credit unless you bring the account current again and get back on a plan to pay off the full balance.
However, at New Era we know it’s difficult to make do without at least one credit card for identification and/or emergency purposes. To that end, it is permissible for clients to maintain one card (preferably one with a small balance) outside of the program. This is another great benefit of the Debt Settlement approach versus other methods, which take an all-or-nothing approach to handling your debt.
What are the differences between Debt Settlement and Credit Counseling?
Debt Settlement and Credit Counseling are two different approaches to debt relief. These differences primarily show up in the length of time it takes to become debt free and the overall amount it costs.
With Credit Counseling, you will eventually pay back all of the debt balances – plus interest and fees; whereas with Debt Settlement, you pay back only a portion of your debt load. This makes Debt Settlement a much faster path to handling your debt (2-3 years) than Credit Counseling (5-9 years). And, this means a lot less money out of your pocket.
What kind of debt can be negotiated?
As a general rule, any type of unsecured debt can be successfully negotiated. An unsecured debt is one that is not tied to a specific material item that could be repossessed by the creditor. So an auto loan, for example, could not be included because the creditor could legally repossess the vehicle.
Credit card debt, medical bills, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts are all types of debt that can be included in a debt settlement program.
The main exception is student loans, which in most cases are government backed loans that cannot even be discharged in a bankruptcy proceeding. (Private student loans that are not sponsored by the government can be included.)
Credit Union debt is generally non-negotiable. That’s because a credit union is a member-owned organization, where a settlement would come at the expense of your fellow credit union members. For this reason, Credit Unions are unwilling to accept anything less than the full balance owed.
What if a creditor won't negotiate?
New Era has successfully negotiated with thousands of creditors all across the nation. In the course of business, we have established contacts with the major banks, collection agencies, and collection attorneys. Debt Settlement is recognized as a viable solution by collection industry professionals, and at New Era we pride ourselves on the professional reputation we have established by dealing fairly with creditors.
In the rare instance where a creditor balks at accepting a reasonable settlement at the time it is proposed, it is often a matter of simply waiting for a different phase of the collection process.
Some creditors are more inclined to play “hardball” than others, but virtually all of the major institutions eventually sell their accounts to debt purchasers in order to get what they can for the account. Since the debt purchasers acquire these accounts for pennies on the dollar, they are more inclined to accept a reasonable settlement offer, which still represents a profit on their purchase.
Are there debts that can't be entered into a debt settlement program?
Secured debts cannot be negotiated via a Debt Settlement program. This includes home loans, second or third mortgages, equity lines of credit, auto loans, and financing contracts tied to a specific piece of property that may be legally repossessed by the creditor.
Federal student loans, although unsecured, must also be excluded from the program. In addition, Federal and State taxes cannot be included.
Can I do this myself?
Yes, it is certainly possible for a consumer to negotiate his or her own debts. However, there are several important factors that should be taken into consideration before making such a decision.
First, do you have the time? For individuals with serious debt problems, the complexities of the negotiation process can be very time consuming. Many people simply do not have the time to add this labor-intensive task on top of an already busy work schedule.
Second, it requires a certain kind of psychological toughness to haggle with creditors. The average consumer is hampered by the embarrassment and shame they feel over having gotten into trouble. With all the tricks, traps, and pressure tactics used by creditors, most people will find themselves better off with professional assistance.
Third, as with any profession, there are techniques not easily mastered by an amateur. Without professional coaching, the likely result will be high-percentage settlements in the best case, and outright failure in the worst case.
When you consider that the total payout including professional fees will still be far less than your original balances, it makes more sense for the average person to obtain debt settlement help.
How do I know New Era is legitimate?
As with any large industry, there are both good and bad Debt Settlement companies in operation, and it is wise to be sure the one you choose has your best interest at heart.
New Era has been helping consumers become debt free since 1999. We’ve settled more than $200,000,000 in debt and worked with thousands of clients. But don’t take our word for it. Visit our Testimonials page to read or listen to our clients’ stories in their own words.
Also take a look around our website where you’ll discover more about our processes and accreditations.