What Happens to Your Money During the Debt Settlement Processes?

Debt Settlement Processes 1

With credit card debt at a record high in America, consumers are increasingly considering debt settlement as a solution to their financial woes. But, how does the debt settlement process work? Can anybody qualify for debt settlement with credit card companies? Learning the facts before you begin negotiations can save you time and money.

How the Process Works

Debt settlement can only occur if your creditor has agreed to accept less than what you owe. For many people, this is the best route to financial health. Debt settlement with credit card companies can help you avoid bankruptcy and finally stop the incessant debt collections calls. The debt settlement process can actually take two forms. You can call the credit card company yourself and negotiate a settlement for your outstanding balance. Or, you can employ the services of a debt settlement company, such as Liberty Debt Relief, to negotiate with your creditors on your behalf.

Why Would Your Credit Card Company Agree to Debt Settlement?

In an ideal world, every credit card company would like to recoup the entire debt, plus any interest and fees it accrues. However, if the credit card company determines that you are genuinely unable or unlikely to repay the whole debt, they may agree to a debt settlement.
Creditors may agree to a settlement so that they can recoup at least some of their money and minimize the loss. This process is usually employed after several missed payments and if your account has been sent to collections

What Happens To Your Money During Negotiations?

What happens to your money during the debt settlement process depends on several factors. Firstly, it depends on whether you are negotiating the settlement yourself or if you’ve enlisted the help of a debt settlement company. If you’re negotiating yourself, the short answer could be, nothing, but you will be burned in other ways, such as having few solutions when dealing with creditor calls and the stress of negotiating back and forth. However, debt settlement companies often ask clients to dedicate a specific bank account for stashing the settlement money so it can be ready to be paid to the creditors when the negotiations are complete. This account is often administered by a third party, but you still have access to these funds.

Your lenders can also employ a series of legal actions to help them get their money back. These are:

Wage Garnishment

There is a legal avenue for creditors to garnish your wages or take money directly from your bank accounts in order to clear a debt. But, don’t panic just yet. Creditors can’t unilaterally decide to garnish your wages. This action requires a court order.


Lucky for you, certain forms of accounts or income are exempt from garnishment. These include:

  • Student Assistance
  • Social Security / SSI Benefits
  • Veterans’ Benefits
  • Military Annuities and Survivors’ Benefits
  • Civil Service and Federal Retirement and Disability Benefits
  • Railroad Retirement Benefits
  • Merchant Seamen Wages
  • Federal Emergency Management Agency (FEMA) Federal Disaster Assistance
  • Longshoremen’s and Harbor Workers’ Death and Disability Benefits
  • Foreign Service Retirement and Disability Benefits
  • Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Outside the U.S.

If you can prove that the money in your account originated from one of these sources, that money cannot be legally garnished or frozen.

Considerations for the Debt Settlement Process

Before you start negotiations, you should keep a few things in mind:

  1. Debt settlement companies will charge fees for their services. Never use a company that asks for any sort of payment up front, but also find out exactly how much you will owe them at the end of the process.
  2. Choose your debt settlement company wisely. Some creditors may have a “blacklist” of companies they refuse to work with. Liberty Debt Relief has achieved settlement offers from a variety of lenders on behalf of our clients.
  3. Be wary of any company that makes grand promises of settling your debt for pennies on the dollar. For some, settling for less than half of what is owed is possible, but not for everyone.

Liberty Debt Relief

The experts at Liberty Debt Relief have helped millions of client reclaim the lives and their financial freedom with relief from overwhelming debt. Contact us today and find out how we can help you do the same. The consultation is free.

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