Frequently Asked Questions
We take the guesswork out of your debt resolution journey by being upfront and transparent every step of the way. Check out our FAQs for answers to common questions.
Frequently Asked Questions
What is a debt resolution program?
Debt resolution (aka debt settlement, negotiated debt settlement, or debt negotiation) is a process where a company (like Five Lakes) negotiates with a creditor or debt collector to resolve an unsecured debt.
While negotiating, the debt resolution company has two goals:
- To reduce the amount that you owe.
- To “settle” the debt faster than you could pay it off on your own.
Although this may seem too good to be true, the debt resolution strategy is pretty standard, and creditors are willing to resolve debts for less than the amount owed. Creditors understand that clients facing financial hardship may never be able to pay the debt or could decide to declare bankruptcy, so it’s in their best interest to settle a debt for less money rather than getting nothing.
Who is best suited for a debt resolution program?
Debt resolution is a good option for people who have $10,000 or more in unsecured debt and want to reduce what they owe and pay without declaring bankruptcy. If you have financial struggles, including more debt than you can pay off in the next two to four years, debt resolution can be a strong option to help you recover financially.
What type of debt can Five Lakes help me with?
We only work with unsecured debts that do not have collateral attached to them. Unsecured debt includes credit cards, store cards, medical bills, and personal loans. Debt resolution does not work with debts that have collateral attached – like mortgages, car loans, or federal student loans. Please get in touch with us if you need to clarify which of your debts are eligible.
How does a Five Lakes debt resolution program work?
We can walk you through each program step in detail over the phone. In the meantime, here’s an overview of our process after you’ve enrolled in the program.
- Once you’ve enrolled in the program, a custom negotiation strategy is created based on your particular mix of creditors and debt amounts. Your program is designed to maximize your savings, reduce your overall payments, and resolve your debt as quickly as possible.
- Next, you’ll open your FDIC-insured Dedicated Account (sometimes called an “escrow” or “settlement” account) that you fully own. This is where you’ll send your monthly deposits. The account is used for one purpose only: building up your savings so you can eventually use those funds to pay off your creditors.
- Our negotiators will do everything they can to get your creditors to call us (rather than you), so we negotiate resolutions as quickly as possible. It is also a good idea to voluntarily stay off the phone with your creditors. If you answer, the volume of calls could increase i.e. the more you pick up, the more they call (and vice versa). At this point, you’ll also need to stop using the credit card or loan your program is targeting.
- Once one of your creditors agrees to a lower settlement, and you’ve approved it, payments from your Dedicated Account will be sent to the creditor. Sometimes, the settlements involve one lump-sum payment to creditors, while others involve multiple payments over time. When the settlement is complete, your debt with the creditor is considered resolved, and the debt resolution services on that debt are complete.
When will I have my debts paid off?
The average debt resolution program lasts two to four years, however, the exact length can vary from person to person. How long your program takes depends on several factors, including how much money you deposit in your account every month. Once you have saved enough money to cover a resolution agreement, you can start paying off debts. The more money you can save in your Dedicated Account, the faster your debts can be resolved.
Remember, making all program deposits consistently and on time is the most important way to ensure a successful program outcome. Missing payments can stall the negotiation process as we leverage the funds in your Dedicated Account during negotiations with creditors.
How soon do you start working with my creditors?
Most of your creditors won’t be open to serious debt reduction discussions with us until they know you’re serious about reaching a resolution agreement and paying off the debt. The best way to prove that commitment is by pausing direct payment to your creditor and instead making monthly payments to your Dedicated Account.
Usually, the first resolution agreement happens three to six months into the program.
Who is in charge of that Dedicated Account?
You are! Once you’ve enrolled in a program, you’ll set up a Dedicated Account in your name and deposit your money into it. The reason for setting up this new account (rather than just putting your monthly deposits into an existing bank account) is to keep those settlement funds separate from your other money. Of course, if you ever withdraw from the program, the remaining funds in your Dedicated Account (minus banking and earned settlement fees) are yours to keep.
What happens if I end up missing monthly payments? Am I going to be kicked out of the program?
Though making consistent, on-time program deposits are the best way to ensure your success, we know unforeseen issues can arise. It could happen to anyone, and it’s not a reason to drop out of the program. Keep in mind that missing multiple program deposits could put your program at risk, so it’s important to let us know exactly what is going on.
If something comes up give customer service a call and we can find a way to get you back on track. If you know ahead of time that you’ll have a problem with a payment, tell us at least five business days ahead of time so we can make other arrangements.
Remember, building up your Dedicated Account is an important part of settling your debts, so missing a payment may delay your debt relief program progress (plus, you could miss out on possible settlements.)
Will I still get charged interest and late fees on my debts?
Part of your agreement with your creditors allows them to continue to add interest and late fees to your debt any time you stop making payments. This includes pausing payment and redirecting the monthly deposit to your Dedicated account. This means while you’re getting your Dedicated Account set up and funded, your credit card debt is likely to temporarily increase due to interest and late fees, until a settlement is reached. However, the goal of the debt resolution program is to arrange settlements that reduce your debt balances no matter what kind of interest charges or late fees are added after you begin our program.
What happens if any of my creditors won’t budge on a settlement?
In extreme cases, if a creditor refuses to settle, the only option may be to remove the creditor from the program. If a resolution can’t be reached, we can’t collect a fee from you for that specific debt.
What about calls from collectors? How should I handle them?
Sometimes creditors hire collectors to pressure you into paying your debt. Then, debt collectors will pocket a percentage of whatever you pay your creditors. Collection calls are an expected part of the debt resolution process and are actually an indicator that your program is working! Our most successful clients choose to let calls from unrecognized numbers go to voicemail. There are even free apps you can download to block certain calls from your smartphone.
Both federal and state laws protect you against collection harassment. If you accidentally end up speaking to a collector, you should let the collector know you’re working with Five Lakes and that they can speak to us. Also, make sure to let us know about the call, including which collector is calling you and when they called you. We want your creditors to call.
What happens if my creditors take legal action against me?
Legal action by creditors could occur. If you do receive a legal notice, please send it to our service team so they can prioritize this creditor or lender and work to resolve the debt.
Rather than taking legal action, it is more common for creditors to sell your debt to third-party collection agencies and/or law firms. When something like this happens, we will move this account to the top of our priority list.
If a lawsuit does get filed against you, your settlement negotiators can attempt to resolve that creditor or lender’s account by setting up a specific payment plan. They also may be able to refer you for further help if needed.
Am I going to owe taxes on whatever debt was forgiven?
While the answer can be different for everyone, in general, forgiven debts can be taxable. When tax time rolls around, you’ll likely receive a Cancellation of Debt form (1099-c) from the lender that forgave your debt.
To understand the potential tax implications of any debt that’s been forgiven through a debt relief program, we recommend talking to your tax advisor.
How could a debt resolution program impact my credit?
Everyone’s specific credit situation is different, but in general, having a lot of debt puts on a strain on your credit health. Our goal is to help you resolve your debts quickly so that you can start building a healthy financial future as soon as possible, including a more positive credit score.
Initially, enrolling in a debt resolution program could have a negative impact on your credit. Pausing payment to creditors at the beginning of a resolution program will impact your credit. The good news is that resolving your debt will put you in a good position to improve your credit long-term through healthy financial habits and practices.