How to Settle Your Debts in Delaware

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Written by Upsolve Team.  
Updated March 18, 2020

Summary

Once you’ve gathered information about your debts and your ability to repay them, you can determine whether pursuing debt settlement is in your best interests. If you choose to settle your debts, you’ll also need to make an informed choice about negotiating with your creditors on your own or seeking the assistance of a debt settlement company. 

For decades, Delaware’s federal bankruptcy court in Wilmington has been a favored location for nursing Fortune 500 companies back to health through Chapter 11 reorganization cases. Trump Entertainment Resorts Inc., a casino company founded by Donald Trump, filed a Chapter 11 in Delaware. Washington Mutual (based in Seattle), the Tribune Company (based in Chicago), and Energy Future Holdings (based in Dallas) filed bankruptcy cases in Delaware.

Anyone in Delaware can find debt relief through bankruptcy. You don’t have to be a Fortune 500 company to manage your debt in this way. You can also find debt relief in Delaware through the debt settlement process. You can pursue this process yourself or with the assistance of a Delaware debt settlement company. In either case, you or a debt settlement company will negotiate settlement agreements with your creditors that will allow you to pay less than the total debt amount owed. Essentially, you’ll offer your creditors a lump sum payment to cover a significant fraction of your balance in exchange for partial debt forgiveness and the closure of your account. 

If you work with a debt settlement company, you may be able to “build up” your account over 2-3 months before offering your creditors a settlement. If you choose to navigate the Delaware debt settlement process on your own, you should know that creditors usually prefer payments by lump sum instead of payment plans as this reduces the risk of further default. If you’re hoping to make installment payments to a debt settlement company, you’ll make payments to a bank account, and after these funds accumulate and the target amount is reached, they’ll be paid to creditors.   

Credit cards and other unsecured debts are best suited for debt settlement. Any unsecured debt with a high outstanding balance that has accumulated late fees is an excellent candidate for debt settlement. Debt settlement typically becomes an option after you have missed making the minimum monthly payments on your accounts for two or three months, as creditors don’t like to settle with clients who can clearly make their minimum monthly payments on time. This process can be successful if you have the ability to pool enough money or sell enough property to make payment in a lump sum. Know that because you won’t be paying your debt in full, your credit score will take a temporarily negative “hit” if you settle any of your debts. 

Learn More Through Free Nonprofit Credit Counseling 

When your financial situation becomes unmanageable, consulting with a credit counseling agency is a good course of action. Many experienced, trustworthy credit counseling agencies offer credit counseling at no cost. This process will allow you to learn about your debt management options and to receive a personalized action plan designed to help you meet your financial goals. Licensed credit counselors trained in areas of personal finance can explain the pros and cons of each of your debt relief options. As a result, credit counseling should help you understand which option is best for your financial situation in consideration of your present and future goals. 

Consulting with a credit counseling agency that is a member of the respected National Foundation for Credit Counseling (NFCC) is your best move. All NFCC members offer free credit counseling sessions at no obligation and are accredited institutions, which means that they are held to particularly high standards. 

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How to Settle Your Debts in Delaware 

Once you’ve gathered information about your debts and your ability to repay them, you can determine whether pursuing debt settlement is in your best interests. If you choose to settle your debts, you’ll also need to make an informed choice about negotiating with your creditors on your own or seeking the assistance of a debt settlement company.


Collect Details About Your Debts 

Next, collect all the important information about your individual secured and unsecured debts. Gather the monthly totals for each debt category. Recent account statements will contain each of your debts’ current outstanding balance, interest rate, and monthly payment amount. Review these statements for each of your debts, even those you may not want to settle, like auto loans, income taxes, and federal student loans. 

Also, obtain a current credit report from the three credit bureaus and review it in detail. You want to be able to give both your credit counselor and your creditors a comprehensive sense of your financial situation. The more information that your credit counselor and/or a debt relief company has about your debts, the better it can evaluate your needs, find solutions, and help you to manage your debt. It will also help make you more informed and place you in a better position to move forward and consider whether alternative options like debt consolidation and debt management might be right for you. 

Collect Details About Your Ability to Settle Your Debts 

Just as expenses may be fixed or variable, income can be as well. If you always work forty hours a week, no more, no less, and earn a fixed hourly wage, it’s easy to determine income for the purposes of creating a budget. If you’re self-employed and some weeks are better than others, then it’s more difficult to determine the income that’s representative of a typical work week. No matter what your income situation looks like, you’ll want to evaluate what your income will consist of for the next few months so that you can determine whether you can afford to offer debt settlements to any of your creditors. 

After you have a clear picture of what your income is every month, consider your expenses, which you can separate by those that are fixed and those that are variable. Fixed expenses are costs whose monthly payment amounts don’t fluctuate. Student loan payments, cable, internet, car insurance are some examples. Variable expenses change monthly based on need. Groceries, gas, and recreation costs are variable expenses. You may be able to cut back on some of these expenses while funding settlement offers, but you may not. Everyone’s financial situation is unique. 

Whatever amount of money remains after subtracting your expenses from your income is the amount of disposable income you have available to pay creditors. If you don’t have enough disposable income to make a debt settlement work (and you don’t have any property to sell or assets to pull to fund your offers), you may have to consider other options, like debt management or debt consolidation.

Learn About the Costs to Settle Your Debts in Delaware 

There are costs that you will incur if you move forward with the debt settlement process, whether you hire a debt settlement company or not. Late fees and penalties continue to accrue as you consider your options for debt relief. Then there are the associated costs if you hire a debt settlement company, such as the fees paid for its services and any other fees associated with the debt negotiations. Whether you use a debt settlement company or assume debt negotiations yourself, the more time you spend waiting to make any decision, the more it will cost you.

Federal law prohibits debt settlement companies from collecting fees until they have settled a debt. Some companies’ fees are based on a percentage of total debt, while other fees are based on the money saved by the debt settlement program. This second option is ideal because it provides debt settlement companies with motivation to secure the best deal possible on behalf of their clients. 

Decide Whether to Work with a Delaware Debt Settlement Company 

There’s no reason that you can’t achieve a settlement of your debts by yourself instead of using a third-party debt relief company, if that is the approach you’d like to take. Unlike a debt consolidation, where you need a new loan to make the process work, you just need to invest time and effort to settle your debts if your creditors are amenable to making a deal. You’ll save any fees incurred by hiring a debt settlement company, and you’ll control all debt settlement negotiations.

With that said, a drawback is that you will have no insider knowledge about your creditors and what amount/fraction they’re likely to accept as a lump sum settlement. Also, a debt settlement company has the experience in debt settlement matters that you lack. Debt negotiation is stressful and time intensive. If you’re willing to spend a little extra money, you may want to hire the services of a reputable debt settlement company. There is no “right” decision; you should do whatever makes the most sense for you.

Research Delaware Debt Settlement Companies 

By law, debt settlement companies must disclose key features of their services, including the length of time necessary to get results, the cost, the negative effects of using a service for debt relief, and other important information. Providers of debt management services in Delaware must act in good faith when performing any service. This means that they violate Delaware law if they perform any service for a purpose other than to benefit clients. Delaware debt management companies must be licensed and maintain a toll-free phone number, staffed at a level that reasonably allows consumers to speak to a certified counselor or customer service representative during ordinary business hours.

Before providing debt-management services, licensed providers must give clients an itemized list of services and fees. The list must be clear and conspicuous and in a form that clients may keep regardless of whether they agree to services. The maximum fee for a Delaware debt settlement is 18% of the principal amount of the debt and includes all set-up, monthly, and settlement fees. A provider may not furnish debt-management services unless it, through the services of a certified counselor:

  • educates clients about personal finance management; 

  • prepares a financial analysis; and, 

  • if the client is to make regular debt payments, has prepared a plan based on the provider’s evaluation and conclusion of the information provided by the client and otherwise, that:

    • the plan is suitable; 

    • the client will be able to make payments under the plan or that the creditor can engage in debt negotiations with the provider; and 

    • participating creditors in the plan will accept payment of the individual’s debts.

Debt collection is regulated by the Fair Debt Collection Practices Act (FDCPA), administered by the Federal Trade Commission (FTC). Consult with the Better Business Bureau and Delaware Attorney General’s website for more information on consumer protection and debt services in Delaware. Doing your research now will help to ensure that any debt settlement company you choose to work with isn’t a front for a scam. 

How to Make Your Debt Settlement Work 

If you’re making your debt settlement payments via installment, it’s important to pick a logical, workable, monthly payment date, which is different than the date your mortgage or rent payment (or any other major expense) is due.

You can also use a credit card with a reasonable interest rate to pay for any unexpected expense that may arise as you’re focusing your efforts on funding settlement offers, and minimize the effect on your budget by repaying it as soon as possible through a short monthly payment plan. Remember that this use of credit cards while settling accounts with other banks may be seen by a creditor in a negative light, which may impact any settlement offers that you receive, so walk cautiously here. 

Alternatives to Debt Settlement 

Terms like “debt settlement,” “debt management,” and “debt consolidation” can be intimidating, but they shouldn’t be. Each of these terms represents a debt management solution that can help struggling individuals regain their financial footing. If you can’t find a debt settlement program that works, or maybe you just don’t qualify for a Delaware debt settlement, there are other solutions that may still help you find debt relief, even if you have a low credit score. 

There are many qualified credit counseling agencies in Delaware that can provide more information about debt consolidation or debt management plans. There’s also a wealth of free assistance available online and near you in Delaware. Even if debt settlement isn’t the best option for you, there are others available for you to consider. 

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Delaware Debt Consolidation 

If you have a solid credit score, you may want to look into securing a Delaware debt consolidation loan. The goal of a debt settlement is the partial payment of your debts. However, debt consolidation loans aim for full payment with more favorable lending terms. A debt consolidation loan acts as a balance transfer so that you can pay your existing debts and streamline your efforts into paying off a single account on a monthly basis. If you don’t have a solid credit score, a debt management plan can consolidate your debts regardless of your credit history. 

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Delaware Debt Management Plan 

A Delaware debt management plan may be your best solution for achieving debt relief. Unlike a debt consolidation, which requires a new loan, a DMP serves as a program that organizes your debts into a repayment plan managed by a credit counseling agency. Essentially, the agency negotiates with your creditors to secure you favorable repayment terms. Then, instead of paying multiple creditors each month, you’ll pay the agency a single payment. The funds from this payment will be distributed by the agency to your creditors on your behalf. 

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Delaware Bankruptcy 

After considering debt settlement, debt consolidation, and debt management, you may want to meet with an experienced Delaware bankruptcy attorney to better determine if bankruptcy is the best path forward. Additionally, Upsolve provides a vast number of useful and helpful services if you’re considering bankruptcy, whether you want to file with or without the help of an attorney. Upsolve can also help you file a Chapter 7 bankruptcy case for free. If you prefer to work directly with an attorney, Upsolve can refer you to an experienced bankruptcy lawyer near you.

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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