Debt settlement, also known as debt negotiation or debt reduction, is a relatively new way for dealing with your debt problems. In a debt settlement program, by negotiating with a creditor, a client can reduce their debt by as much as 50 percent and be debt free in as little as 12 months. In order to accomplish these savings, however, a client must voluntarily stop paying their creditors. By doing this, a creditor is forced to confront the following question: How can I collect the most money from this past due debtor with the least amount of effort and the least total expense to my company? Typically the answer to this question in the minds' of creditors is accepting a lump sum settlement for less than the full balance owed.

Although the vast majority of cases work out according to this framework, as anyone who has ever read a debt negotiation contract can tell you---it's impossible for a debt settlement company to guarantee that a client won't be the target of any legal action by their creditors. After all, creditors are always reserved the right to sue debtors to collect a past due account, regardless of whether the consumer is taking any action to resolve the outstanding debt.

That being said, thanks to highly favorable state and federal debtor laws, the elderly and the disabled are very difficult to collect a past due debt from relative to the average American consumer, even if a creditor has sued them in court and won a judgment.

Consider the following situation. Let's say a creditor has just sued you and won a judgment in court. They now have to execute the judgment in order to actually start collecting the debt. One way a creditor executes a judgment is through wage garnishment. When a creditor garnishes someone's wages, they automatically (and legally) withdraw a certain percentage of that person's wages every paycheck (25% after taxes in most states) until the debt is paid off. Fortunately, creditors cannot garnish Social Security, disability, and most pensions (unless the “creditor” is the mother of your children and she's collecting alimony). This being the case, the creditor would probably look for another way to collect the debt. Levying a bank account is another common method for executing a judgment. Again the elderly and the disabled are protected, presuming the bank account's funds are made up of the deposits from social security, pension, and/or disability benefits.

A creditor is always reserved the right to pursue legal action to collect a past due debt, even if the debtor is elderly or disabled. However, it only makes sense that they'd prefer to accept a settlement for less than the balance, especially if the debtor has no assets or lives in a debtor-friendly state like Texas, Iowa, Florida, Arkansas, Massachusetts, or Oklahoma.