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Which debts can go into a resolution program, and what can happen to them

Cards, personal loans and medical bills can be enrolled. Mortgages, car loans and federal student loans cannot. What enrolled accounts go through, from collections to a possible summons.

01What goes in, and what stays out

The dividing line is collateral. A creditor with nothing to repossess has a reason to negotiate. A creditor with a house or a car behind the loan does not.

Enrollable or not
DebtCan it be enrolledWhy
Credit cards and store cardsYesUnsecured, and the most common account in a program
Personal loansYesUnsecured, as long as no collateral was pledged
Medical billsYesUnsecured, and often already in collections
Private student loansSometimesSome lenders negotiate, usually only after default
Old collection accountsYesOften settle at the lowest rates
Mortgage or home equity lineNoSecured by the house
Auto loanNoSecured by the car
Federal student loansNoFederal programs handle hardship their own way
Child support and alimonyNoCourt-ordered and not negotiable
TaxesNoHandled through the tax agency's own programs
Business debt you signed for personallySometimesDepends on the lender and the program

Most programs want at least $7,500 to $10,000 of enrollable debt in total. Accounts under about $500 are often left out, since the fee and the effort outweigh the saving.

02What happens to an enrolled account

Once you stop paying, an account moves through a set of stages, and each one is a creditor deciding whether to negotiate or escalate.

  1. 1

    Late and in-house collections

    Month 1 to 3

    The creditor's own team calls and writes. Late fees and penalty interest start. Many programs ask you to route calls to them, but the creditor can still contact you directly.

  2. 2

    Charge-off

    Around month 6

    The creditor writes the balance off as a loss on its books. The debt is still owed. Some creditors settle just before this point; others sell the account after it.

  3. 3

    Third-party collections

    Month 6 onward

    A collection agency or a debt buyer takes over. Debt buyers paid pennies on the dollar and often settle lowest, sometimes at 30 to 40%. Federal rules limit when and how they can contact you.

  4. 4

    Lawsuit

    Any time, more often after month 6

    A creditor or buyer files in civil court. You receive a summons with a deadline, often 20 to 30 days, to respond. The program does not stop this from happening, but most move a sued account to the front of the line.

  5. 5

    Judgment

    If the suit is not answered or is lost

    The court orders payment. Depending on the state, a judgment can allow wage garnishment of up to 25% of take-home pay, a bank levy, or a lien on property. Some states protect wages entirely.

03If a summons arrives

  • Read the deadline on the first page and treat it as real. A missed deadline usually means an automatic judgment.
  • Send the papers to the program the same day. Most will push that creditor into immediate negotiation, and many have attorneys or legal partners who can file a response.
  • Do not ignore it in the hope that the settlement comes first. A judgment removes the creditor's reason to settle at a discount.
  • If the program cannot help with the response, a consumer attorney or a legal aid office can. Many will review a summons for free.

A lawsuit is the one outcome that can make resolution cost more than the alternatives. If one is already filed before you enroll, compare resolution against bankruptcy first, since bankruptcy stops a suit by law and resolution does not.

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Related

  1. Debt resolution: the full guideWhat debt resolution is, who it fits, how a program runs month by month, what it costs in fees and credit, and where it stands against borrowing on the house.
  2. What debt resolution does to your creditScores often drop 100 points or more. Late marks and charge-offs stay 7 years. Recovery usually starts 12 to 24 months after settlements. Here is the shape of the damage and the rebuild.
  3. Debt resolution vs. consolidation, counseling and bankruptcyFour ways to deal with debt you cannot keep up with. What each one pays back, how long it takes, what it does to credit, and who can actually use it.

This path, in order

Debt resolution: the full guide

  1. 01Should you use home equity to pay off card debt?Moving card balances onto the house can lower the rate. It also puts the house behind the debt. Sometimes the better move is to reduce what you owe.
  2. 02What debt resolution does to your creditScores often drop 100 points or more. Late marks and charge-offs stay 7 years. Recovery usually starts 12 to 24 months after settlements. Here is the shape of the damage and the rebuild.
  3. 03Debt resolution vs. consolidation, counseling and bankruptcyFour ways to deal with debt you cannot keep up with. What each one pays back, how long it takes, what it does to credit, and who can actually use it.
  4. 04What debt resolution really costsFees run 15 to 25% of enrolled debt, charged after each settlement. Add the interest that piles up while you wait, and the savings are real but smaller than the headline.
  5. 05Forgiven debt and taxes, in plain termsWhen a creditor forgives $600 or more, a tax form usually follows, and the amount may count as income. The outline, including the insolvency exception, without the advice.
  6. 06Which debts can go into a resolution program, and what can happen to themYou are here