Detroit, Michigan was once known as the Paris of the West. It was the Allies’ armory through World War II, and it became the producer of the iconic automobiles that formed the magnum opus of the U.S. auto industry’s Golden Age, from the 1940s to the early ’70s. Yet all that came to a violent end.
Massively shifting demographics, driven in large part by the African American Great Migration of the 1940s, took place with such speed and such unequal outcomes that, by the mid-’60s, the city was teetering on the brink of calamity. Then the riots of 1967 broke out. The violent confrontations led to scores killed and began the exodus of white residents from which it has yet shown little sign of recovery.
Today, Detroit is often compared to what a city would look like if it were subjected the radioactive blast from a neutron bomb. Urban prairies host packs of feral dogs where families were once raised. Blocks of burnt-out houses stretching for miles act as scrap book of Devil’s Nights past, the neighborhoods too poor and land to worthless to so much as paint over the charbroiled facades and graffiti-covered garages.
With an unemployment rate of 10.2 percent, Detroit has actually recovered markedly from 2010, when it boasted a Mogadishu-like 25 percent unemployment rate. However, even that number doesn’t capture the true extent of Detroit’s perennial problems. The bulk of the city’s population essentially consists of wards of the state, completely dependent on welfare of various forms. These people are neither counted as being part of the labor force nor, for all practical purposes, do they participate in the official economy, to any meaningful extent. This is confirmed by the blocks, mile after mile, of abandoned and derelict commercial real estate that once formed the core of thriving communities. The cold reality, when talking about the Detroit economy, is one that admits the futility of any economic analysis at all. There is no economy to speak of.
In such dire circumstances, many Detroit residents have availed themselves of Michigan’s somewhat lenient bankruptcy laws. Indeed, the city itself petitioned the court for relief from of its own record-setting insolvency. In 2013, amid staggering corruption, theft, mismanagement and continuing economic stagnation, the City of Detroit declared Chapter 9 bankruptcy, in the largest such case of a city in U.S. history.
But while cities can’t settle many of their debts outside of court, Detroit consumers have other options besides bankruptcy. One such option is debt settlement.
Which Detroit consumers might debt settlement help?
Debt settlement is an option that can be far more attractive than Chapter 7. But a few conditions need to be fulfilled. First, the underlying cause of the spiraling debt needs to be identified and corrected. If it is out-of-control spending, then a budget needs to be drawn up and adhered to. If it is a business related expense or a recurring cost that seems necessary, a sacrifice may have to be made. Second, the debt load must be reasonably proportionate to the income level of the debtor. If someone making $30,000 per year finds themselves facing $1,000,000 in medical bills, they should declare bankruptcy. No debt management strategy will help them. They simply need to have the debt discharged by the courts. However, if that same person only has $60,000-90,000 in debt, options like debt settlement start to become very attractive.
If the debtor has addressed the underlying problems that led to the debt and he still has a reasonable income relative to the principal owed, debt settlement may be the best choice.
It is important to note the distinction between debt settlement and debt consolidation. Debt consolidation involves taking out another loan, usually a home equity line of credit or similar instrument and using the lump sum from the loan to pay off all the high-interest, unsecured debts immediately. In short, it is a form of refinancing. The main benefit of going with debt consolidation is that it can keep a debtor’s credit score pristine, while allowing him to continue his lifestyle completely uninterrupted. But debt consolidation also has one major drawback. It trades unsecured debt for secured debt, putting major assets like houses in play, should the debtor default. For this reason, it should only be undertaken by those who are certain they can complete the program.
Debt settlement, on the other hand, does not involve refinancing. The debtor will generally stop making payments to his creditors and instead make payments into an escrow account. When a certain threshold has been reached, the debt settlement company will negotiate with the creditors to settle up the debt. This has the enormous benefit of often times allowing the debtor to significantly reduce the principal amount owed. The best debt settlement companies can sometimes negotiate discounts of up to 75% off the principal amount, potentially saving the debtor tens of thousands of dollars.
The downside to debt settlement is that it will damage the debtor’s credit score. However, these can normally be restored to previous scores within a year or so following a straightforward credit repair strategy.