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How to Settle Your Debts in Michigan

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In a Nutshell

The rest of this section will focus on the debt settlement process in Michigan. The last part of this guide will look at debt-relief options besides debt settlements.

Written by Attorney John Coble.  
Updated September 8, 2020


Two founders of Michigan's giant automakers experienced crippling debt and bankruptcy. These men were Henry Ford of the Ford Motor Company and William Durant of General Motors. Henry Ford's first car company went bankrupt. The Ford Motor Company was his third car company. Cadillac which was later purchased by General Motors was Ford's second car company.

Durant took a different route than Henry Ford. Durant was successful from the start. Durant founded a successful horse-drawn carriage company. In 1907, Durant was one of two co-founders of GM. In 1910, the other shareholders forced Durant out as the head of GM. In 1911, Durant and Louis Chevrolet founded the Chevrolet Motor Company. It was a huge success. In 1918, GM merged with Chevrolet and Durant took over as GM's President again. Durant was a wealthy man. By the 1920's he had left General Motors again and started a new car company. In 1929, Durant along with the Rockefellers and other wealthy people, tried to buy stocks after the crash in an attempt to prop up the market and avert financial catastrophe. It did not work. By 1936, Durant was bankrupt. Durant tried to recover his fortune until he died in 1947. One of his last ventures was a bowling alley where he worked in the kitchen.

Today, we have much better debt solutions than were available to Ford and Durant. Let's hope we never have another Great Depression like the one that left Durant in ruin. Unfortunately, we did have a Great Recession from which many Michiganders still haven’t recovered. 

 A Michigan debt settlement is one solution you may consider. In a debt settlement, you settle your debt for less than the outstanding balance. This settlement plan is either one lump-sum payment or a short-term installment agreement. These installment agreements are usually only two to three payments. You can do a debt settlement on your own or you can hire a Michigan debt settlement company to set up a debt settlement program for you. Credit card companies are willing to take less than the full amount due to settle your debt. This is because they are aware that they'll only get paid 20% of the time when you're over ninety days past due. The lenders prefer to lose the least if you’re already far behind on your debt payments. Creditors have several ways to achieve this. They could settle with you. They could send your loan to a collection agency or an attorney. They can sue you. Or, they could sell your debt to a debt-buying firm.

Learn More Through Free Nonprofit Credit Counseling

Credit counseling is a good start for anyone seeking debt solutions. Credit counseling is free so why wouldn't you take advantage of this opportunity. Your credit counselor will have seen many cases. Their experience provides them with ideas that you will never have considered. In your first credit counseling session, you and your credit counselor will look at your income, expenses, and debts. Both short-term and long-term financial goals will be set. At the end of the first session, your credit counselor will make a recommendation for the best debt relief option for you.

Credit counselors won't do a debt settlement for you. They may be able to help you find a reputable Michigan debt settlement company though. Using a credit counselor can help you determine if debt settlement is an option for you to consider. Nonprofit credit counseling agencies have no financial incentive to recommend debt settlement. If your credit counselor does recommend a debt settlement, find out why and heed their advice. A debt settlement company is much more likely to recommend a debt settlement for you even if it's not the best option for you. This is because debt settlement companies are in business to make a profit. Debt settlement companies are sometimes called debt relief companies. They only make money if you use what they're selling. For more on the difference between credit counseling and debt settlement companies, see this information from the Consumer Financial Protection Bureau.

How to Settle Your Debts in Michigan

The rest of this section will focus on the debt settlement process in Michigan. The last part of this guide will look at debt-relief options besides debt settlements.


Collect the Details About Your Debts

The first step for a successful debt settlement is to do a close analysis of your debts. Get your bills together. When looking at your bills, pay attention to the interest rates, monthly payments, and balances. Get your free credit report. Make sure to get the report for all three agencies. Look at the credit reports to make sure you are taking all your debts into account. Make sure you have the right creditor for each debt. For the debts that are in default, creditors will often sell your debt to a debt-buying firm. If this is the case, the debt-buying firm is now your creditor for that debt.

Debt settlements can cover many types of debt. One type of debt to pay close attention to is student loans. It is near impossible to discharge student loans in bankruptcy. If other student loan relief options won’t work for you, debt settlements are an option. Debt settlements are an option with federal student loans but can be more effective when the student loan is from a private lender.

Collect Details About Your Ability to Settle Your Debts

The next step is to look at your budget. Make sure that another debt relief option besides debt settlement will not work better for you. Determine what your monthly income is. For the purposes of this budget, we aren’t talking about taxable income. We are talking about money that you receive that can go toward your monthly expenses. Besides income from employment, this income can include social security or other government help. It can include financial help from family members.

It's a good idea to leave some small credit cards out of your debt settlement. Keeping these cards current and paying them off whenever possible can help repair your credit. This is necessary after the negative impact on your credit score from the debt settlement. Your credit score is sometimes called your FICO score. Having these cards also gives you the safety of a fallback if an emergency expense arises.

Learn About the Costs to Settle Your Debts in Michigan

You'll incur costs as you move toward a debt settlement. Since you're falling farther behind on your debts, you'll incur late fees and other penalties. Your interest rates may increase. Of course, the goal of the debt settlement is to get the creditor to settle for much less than the debt before these costs occur. Remember that the creditor doesn't have to accept your settlement offer. Michigan debt settlement companies are in business to make a profit for themselves. Their fees are usually a percentage based on the total amount saved for you. This contingency fee makes sense because the more the debt settlement saves you, the more they earn. There are some companies that charge a percentage of your total debt. This is expensive for you and doesn't make sense. Avoid these fee agreements that aren’t based on what the company does for you.

Decide Whether to Work With a Michigan Debt Settlement Company

You don't have to hire a Michigan debt settlement company to settle your debts. This is something that you can do yourself. Negotiating your debt settlement yourself has several benefits. Some creditors won't work with a debt settlement company but will negotiate with their own customers. By doing the debt settlement yourself, you save the fees that you would've paid to the Michigan debt settlement company. Doing the work yourself allows you to have complete control over the process. You will never feel like you're out of the loop.  If you do the debt settlement yourself, make sure to get a written settlement agreement before sending money to the creditor. There are many reasons not to try a debt settlement on your own. You don't have the insider knowledge of what particular creditors will accept. You have no experience with debt negotiations. You have no one to seek guidance from when you're unsure about an issue. Debt settlements take a lot of time, hard work, and patience. Can you handle long waits on the phone? Can you negotiate with the necessary skill? Do you have a good idea of what the creditors will accept?

Research Michigan Debt Settlement Companies

Before signing up with a Michigan debt settlement company, the company must explain its fees and the conditions of its services to you. Debt settlement companies will often tell you to stop making payments to enhance their negotiating position with your creditors. The Michigan debt settlement company must tell you about the negative consequences of not paying the amounts due on the bills they will be negotiating for you. The negative consequences include late fees and other penalties, negative impacts on your credit score, collection calls from debt collectors, and potential collection lawsuits against you. Debt settlement companies will often hold your funds for you in an escrow account of sorts. The company uses these funds to pay creditors. The company must tell you that this money is still your money and that you're entitled to any interest earned on that money. An administrator that isn’t affiliated with the debt settlement firm administers the escrow account. The company must let you know that you're free to withdraw this money at any time without penalty.

The first place to look for information on companies you may retain is the Better Business Bureau where you can check the company's rating. This article from the State of Michigan is an excellent resource as well. Read this article before choosing a Michigan debt settlement company in Michigan; the advice is directly from the state government. The State recommends that you check this list to make sure a debt settlement company licensed to do business in Michigan. The article also recommends calling the Attorney General's Office for information about complaints about a company you're considering. The phone number for the consumer protection part of the attorney general's office is (517) 335-7632. It's important to know that the debt settlement company you're considering isn't a scam.

How to Make Your Debt Settlement Work

If you are making payments to build up a balance with a Michigan debt settlement company, make sure to set your due dates for these payments at a time of the month when you're not making other large payments. Stay on your budget. Make sure the budget sets aside money for expected expenses that happen less often than monthly. An example of such an expense would be your annual car registration expense. Make sure you're setting aside money for an emergency. If you're building up your escrow account with a date settlement company over thirty-six months, you can bet that you will have some kind of emergency expense over that time. Examples of emergency expenses are car repairs that weren't expected, or they could be something as simple as dropping your phone in the lake.

Alternatives to Debt Settlement

For many people, debt settlements are the best solution. For most people, there are better solutions than debt settlement. Debt settlements are best if you either have cash on hand or assets to sell to raise money to make large lump-sum payments to settle your debt. Since you're not paying your debts in full, a debt settlement will have a negative impact on your credit score. For this reason, debt settlements are best for you if you already have bad credit.

Michigan Debt Consolidation

Michigan debt consolidations are the best solution if your credit score is high enough to get a loan big enough to combine your credit card debts and medical bills. By taking out a personal loan to pay off your other debts, you will have only one monthly payment for that loan. This is easier to track than having a payment for each of your credit cards. Debt consolidation loans are typically either personal loans, home equity loans, or credit card balance transfers.

Michigan Debt Management Plan

A Michigan debt management plan uses a credit counseling agency instead of a loan to combine many of your unsecured debts into one payment plan. These debts are most often credit card debts. The credit counseling agency negotiates with your lenders for more favorable terms on your debt. By getting lower interest rates for you, your total debts are paid in full in a monthly plan. The monthly payment will be less than the combined minimum payments for the debts.

Michigan Bankruptcy

A Michigan bankruptcy is an excellent option if the other debt solutions aren’t a good fit for you. For most people, bankruptcy is a better option than a debt settlement. A Chapter 7 bankruptcy uses courts and the bankruptcy laws to eliminate your debt. A Chapter 13 bankruptcy is like a debt management plan through the bankruptcy court. Unlike a debt management plan, a Chapter 13 bankruptcy can handle more than unsecured debts. A Chapter 13 bankruptcy will achieve better terms than any debt management plan. In cases where an attorney isn't needed, Upsolve provides a way for you to file a Chapter 7 bankruptcy yourself. In cases that do need an attorney, we can help you find a qualified attorney in your area.



Written By:

Attorney John Coble

LinkedIn

John Coble has practiced as both a CPA and an Attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Attorney John Coble

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