An Individual Voluntary Arrangement is a legally binding arrangement supervised by a licensed Insolvency Practitioner, the purpose of which is to enable an individual, sole trader or Partner ("the Debtor") to reach a compromise with his creditors and avoid the consequences of bankruptcy. The compromise should offer a larger repayment towards the creditor's debt than could otherwise be expected were the Debtor to be made bankrupt. This is often facilitated by the Debtor making contributions to the arrangement from his income over a designated period or from a third party contribution or other source that would not ordinarily be available to a Trustee in Bankruptcy
How Debt Settlement Works
Essentially, debt settlement is the process of negotiating with creditors to reduce overall debts in exchange for a lump sum payment. A successful settlement occurs when the creditor agrees to forgive a percentage of total account balance. Normally, only unsecured debts not secured by real assets like homes or autos can be settled. Unsecured debts include medical bills and credit card debts - not student loans, auto financing or mortgages. For the debtor, this makes obvious sense, they avoid the stigma and intrusive court-mandated controls of bankruptcy while still lowering, sometimes by more than 50%, their debt balances. Whereas, for the creditor, they regain trust that the borrower intends to pay back what he can of the loans and not file bankruptcy (in which case, the creditor risks losing all monies owed).
One example of Debtors Report: Debtors Report - Branch Research Group
Professional Debt Settlement
In order to work with a debt settlement company, a consumer needs lump sum cash (best scenario), or needs to build up enough funds over pre-determined period of time. For consumers who have no cash to make a lump sum settlement offer, debt settlement companies set up a third party "trust" account where funds accumulate for the settlement process. A legitimate company will use an FDIC insured trust account. Once enough funds are built up the negotiation process can begin with each creditor individually. Trust accounts, also known as "special purpose accounts," are often held by a bank, and managed by a bank agent (who charges a monthly maintenance fee). Accounts can also be held by creditors, or may be sold to collections agency for an average of The Negative Side
Debt settlement companies generally take a percentage of the savings of the forgiven debt as the fee for their services. The drop out rate of debt settlement programs is high because these programs generally last between 12–60 months and consumers who find themselves in these sorts of debt situations tend to have trouble sticking to a structured payment program for an extended period of time. Debtors can be sued by creditors seeking to recover debts and interest. This can be avoided by using companies with good standings and practices that protect consumers from these procedures..15 on the dollar, in which case debt can still be negotiated.
Creditor's incentives
The creditor's primary incentive is to recover funds that would otherwise be lost if the debtor filed for bankruptcy. The other key incentive is that the creditor can often recover more funds than through other collection methods. Collection agencies and collection attorneys charge commissions as high as 40% on recovered funds. Bad debt purchasers buy portfolios of delinquent debts from creditors who give up on internal collection efforts and these bad debt purchasers pay between 1 and 12 cents on the dollar, depending on the age of the debt, with the oldest debts the cheapest. Collection calls and lawsuits sometimes push debtors into bankruptcy, in which case the creditor often recovers no funds.
Another Debtors Report: Mark Jones - Courtesy Towing
In the Latin version of the Lord's Prayer, the words Et dimitte nobis debita nostra/Sicut et nos dimittimus debitoribus nostris, the words Debtor and Debt are sometimes translated as Sinner and Sin. This particular understanding of sin, as a form of debt that humanity inherits, is related to the soteriological theory of substitutionary atonement, which states that Jesus died on the cross as a propitiation, or substitute, for sinners.
