Debt Settlement in America: A History

The concept of debt settlement is not a new one and the history of debt settlement is quite lengthy. Ever since the act of borrowing or lending began, creditors have realized that it’s much more “important” to get at least somewhat of what they’re owed back through the art of negotiation. Debt settlement as we know it today is not all that different from what it was back in the day. Debt settlement is one of the most common ways to resolve litigations on the commercial level of things. It’s no big surprise that it costs far less to settle a lawsuit than it does to continue to pay out a lawyer that’s pursuing a case for you. The history of debt settlement has a lot of ups and downs to it! Of course, it took a while for consumer debt to take over, so it took a good while for debt settlement to become popular with the “average Joes” in the world. Before the 1930s, you’d be hard pressed to find a consumer that had major debts and if you did, they were most likely a farmer that was draining their resources trying to produce crops. Once they got their loan, they would typically pay it off with whatever crops they were able to harvest. If you had the means and money necessary, you might be able to acquire a “shopping card” from a big store in the city near you, but only the best customers made out on these kind of offers.

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Debt as a Fashion Statement

In the later portion of the history of debt settlement in the 1930s, the Diner’s Club consumer credit card hit. When this happened, people seemed to get caught up on the belief that owing money was “in style” or fashionable. It didn’t take long for the first bankruptcy lawyers to hit the scene and soon after, commercial litigation and debt settlement were becoming more normal. Once people caught on, everyone that was almost out of money turned to debt settlement to get them out of sticky situations. Unfortunately, debt settlement did little for the misinformed consumers that counted on it to remedy everything: the credit card companies weren’t bound by laws that would protect the consumers and they could go to all kinds of lengths for repayment.

Like clockwork, as the number of credit cardholders rose, so did the rates of consumers having to give in to bankruptcy and the whole time. Congress was almost forced to step in, and they created legislation that was designed to protect the consumers. The Consumer Credit Protection Act, the Fair Credit Billing Act, the Fair Credit Reporting Act and the Truth in Lending Act were all introduced to reel the seedy lenders in and they were obligated to get on board. They were definitely a big part of the history of debt settlement. They became better about taking debt settlement offers to recoup any losses that they could. Even though people were falling prey to their debts early on, it wasn’t until the financial issues of the 1980s that debt settlement would become a widely acknowledged option.

Debt Settlement Starts to Boom

When the banks had to deregulate, the requirements of lending became more flexible in the 1990s. The economy really got going in the back half of the decade and real estate prices surged to new highs that very few people could anticipate. This was a very sad part of the history of debt settlement. In response, people bargained on their home equity and they were pushed even farther into debt. It didn’t take long for things to turn for the worst and once a majority of people were drowning under their debts and there weren’t enough bankruptcy lawyers to keep up with the demand. Because of this, debt settlement companies became a big deal almost overnight. At the peak of things, there were literally thousands of debt collection companies were in operation. 2005 brought about the Bankruptcy Abuse Act and Consumer Protection Act and this made it more difficult for consumers to file for Chapter 7 bankruptcy. This meant that less consumers could have flexible terms with their creditors and debt settlement companies were forced to use questionable practice to get consumers inside the door without really being concerned with helping them out. They stood to gain money right up front and they could care less about the client settling their debt in the end. Because of these actions, the history of debt settlement has earned a bad name over the years. Today, it’s known as a legitimate way to handle your debt issues.

Debt Settlement Now

Even though the Federal Trade Commission has made it more difficult for for-profit debt relief companies to draw in clients, deciding on debt settlement could definitely prove to be very effective for your personal situation. The history of debt settlement is very in-depth.