Columbia, MD -- (SBWIRE) -- 11/12/2009 -- Executives at Debt Shield, a Maryland-based debt settlement company, are reminding banks that debt settlement can help cushion their losses as charge-off rates rise.

Charge-off rates, or the rates at which banks write off unpaid consumer debts, rose to 2.9 percent, a level not reached during the Great Depression, according to Moody's Investors Service. Debt Shield CEO Phil Fewster explained that debt settlement benefits banks because the process helps them collect a portion of consumers' outstanding debt, instead of losing entire accounts to bankruptcy.

"Debt settlement is a process which benefits both consumers and banks because it helps struggling consumers meet their financial obligations while making sure banks can collect as much as possible," explained Fewster.

Third-party collection agencies can recover only 29 percent for creditors on debts older than a year(1). Debt purchasers typically offer between 1 and 9 cents on the dollar for charged-off accounts(2). Fewster encourages creditors to compare these figures to the 30- 50 percent debt settlement agencies typically recover.

"Debt settlement companies can actually offer a greater return to creditors, as these figures demonstrate," said Fewster. "Furthermore, two-thirds of consumers fall off of Chapter 13 repayment plans, so creditors cannot count on recovering funds from bankruptcy filers either(3)."

The debt settlement industry returned $2.2 billion of consumer debt to creditors in 2008 alone, according to The Association of Settlement Companies. In addition, more than $500 million in settlement funds was available to credit card companies as of September 2009.

Bank charge-offs are expected to continue rising, even though some experts believe the current recession is ending, because charge-offs are a "lagging indicator," according to economist Dan North. Many of these charge-offs are on loans that were approved before banks began tightening lending standards. However, experts also predict the unemployment rate will continue to rise, yet another indication the economic recovery may be a slow process.

"These indicators underscore the need for debt settlement," explained Fewster. "It is an especially valuable option now because it can help boost the economy and speed up the economic recovery."

Fewster refers to the study "Debt Settlement: Fulfilling the Need for An Economic Middle Ground," which found that debt settlement can contribute to the overall economic recovery by correcting financial imbalances and improving access to credit. The study, published by Dr. Bernard Weinstein of Southern Methodist University and Dr. Terry Clower of University of North Texas, also found that "[c]reditors who work with debt settlement companies find that their liquidation rates improve while their overall expenses to work accounts decline."

(1) "What Percentage of Money Owed Is Typically Recovered by a Collection Agency?" AllBusiness.com.

(2) "'Zombie' Debt is Hard to Kill," Liz Pulliam Weston. MSNMoney.com.

(3) "Debtor Discharge and Creditor Repayment in Chapter 13," Scott F. Norberg, p.1, 2006.

About Debt Shield:
Debt Shield, Inc., is an award-winning debt settlement company helping consumers resolve their unsecured debt through mutually agreeable settlements in consideration of the consumers’ legitimate financial hardships. As an alternative to bankruptcy, Debt Shield provides a service for both debtors and creditors. For more information about Debt Shield, call 1-888-397-7546 or visit the website at http://www.debtshield.com.