Most owners sign the agreement and then inquire when we are going to commence an effort to resolve their debts. Every business is different, and every situation has its own timeline. How much time it takes depends on the volume of debt you have and the amount of creditors involved. Let’s look at the process so you can understand why.
First, the big picture. A program may be concluded in as little as two or three months, but more likely it is two to four years. After all, the idea of the program is to get out of debt. Why not do it as soon as you can? But it can take time. Your debt settlement may take less time to complete if there are not a lot of creditors to negotiate with. A higher number of creditors can cause the process to be slower. If balances are large (over $100,000) you can expect a longer timeline.
Contact Each of the Creditors Individually
So what happens right after you sign? At Delancey Street, we will contact each of the creditors individually and see what we can do. That will involve understanding what they will accept and what their terms are. With each one, the aim is to get the creditor to accept a single lump-sum payment that is less than the original balance. We need to get that creditor to say “yes,” and then we’ll move to the next creditor. That may not happen on every debt. But that is certainly the ideal scenario. Sometimes it does take time to close an account with the creditor.
There is also work on your side. No creditor takes less than it is owed just because you ask; it wants proof that the business really cannot pay as agreed. So we need to document your situation. That usually means tax returns showing declining revenue, bank statements that show the cash flow problem, and proof of what caused the hardship, such as the loss of a major client or contract.
Then there is the money. Settlement is a two-sided process. You need to have the funds you want to throw at the debt and the creditor needs to agree to less. If you really do not have the extra cash to set aside, how can you convince a creditor to waive part of what you owe? We suggest a separate savings account for settlement payments and fees. It’s a good idea to set up the automatic deposits as soon as possible. Build a realistic budget, cut what you can, and avoid taking on any new debt, because that will only increase the amount you are trying to solve. Make a realistic plan and stick with it. Now, the pace might seem slow. The process takes time, and that’s okay.
Your Business Credit Score Will Take a Hit
Be ready for the downside, too. When payments stop, accounts might start looking bad or delinquent. Your business credit score will take a hit, and missed or late payments can drop it 100 points or more. Things can bounce back over time, but your score might not recover for a few years. And the creditor still has the right to collect and to sue you for the money. You want a creditor to settle without a lawsuit first. A debt settlement program does not mean a creditor cannot take legal action. Delancey Street is not a law firm. When litigation is the right call, we refer you to a vetted independent attorney.
Settlement in Writing
Then, eventually, comes the yes. The promise is one thing. You want the settlement in writing too. That way you know you can rely on it. Make sure all the details are spelled out in the agreement. Once a deal is final, the account should be marked as “settled” and the collections should stop. If not, contact the creditor. Remember that any amount of your debt that is forgiven could be considered taxable income by the IRS. See a tax professional if this applies to you.
A word on fees. Our fee is a single percentage of your total enrolled debt, and we quote it in writing before any work begins. Of course, the fees you pay are not the same as the payments you make. As always, check the fine print to make sure you understand what is being charged and why.
Some owners ask whether they could simply call their creditors themselves and skip the fees. Sometimes, yes. If you have the skill and time, by all means try. Explain the hardship and be persistent; even a small reduction in interest or a waived fee can help. If a creditor refuses, settlement is still an option. It also takes time - sometimes a lot of time - to work through every creditor and every part of a balance.
Long story short, the timeline largely comes down to the specific circumstances of each business. Factors like how much debt a business has and how many creditors they have are some of the main influencing factors. It requires both you and the creditor to be willing to give.
If you have not signed anything yet, start with a conversation. Our first consultation is free and confidential. If your case cannot be won, or a cheaper option exists, we will tell you on that first call. You are never the only one in this situation. Give yourself the opportunity to see if we can help.
