Are you receiving calls or letters for a debt? Maybe you are considering settling your debt with the creditor. Our office meets with many people in the same situation. So, here’s what you need to know:
Debt settlement is a process where you work with your creditors to settle a delinquent account. This can be done either on your own or with assistance. You’ll likely be asked to pay a lump sum that is less than what is owed. This is not to be confused with debt consolidation.
You can find assistance for debt settlement with an attorney or a debt settlement company to negotiate the reduction in the debt amount to settle the account. Keep in mind that you will need to have cash on hand to pay the lump sum requested by the creditor and the attorney or company you use to settle. Not all debt can be handled through debt settlement.
Some companies promise to save you money on debt repayment, but they often tack on hidden fees that add up quickly. In fact, you may end up in greater debt than when you started! Also, the money you pay upfront for your debt repayment will first go straight towards the debt settlement company’s fees. Instead of making progress towards reducing your debt, you may find yourself in more debt or in the same spot you started.
Things to Keep in Mind
- Debt Keeps Growing: The interest & penalties on your debt will not stop accumulating during settlement negotiations. You may also be charged fees based on the percentage of each settled debt (calculated on the debt’s balance when you first enroll with a settlement company) or the percentage of the eliminated debt. This is one reason why it is important to read the fine print before agreeing to work with a debt settlement company.
- Pay Additional Taxes: If a debt settlement is successful, the portion of the forgiven debt can be considered taxable income by the IRS. So, you may need to pay taxes on the forgiven debt.
- No Protection: When using a debt negotiation company, you run the risk of receiving a lawsuit, judgment, wage garnishment, and/or bank levy.
- Your Credit Will be Affected: The negotiation company may ask you to stop making payments, which could result in a delinquent account. Remember, delinquent accounts show on your credit report, resulting in your score being lowered. You could also be sent to collections or be sued for the delinquent debt.
More Things to Keep in Mind
When considering debt settlement assistance, be sure to do your research. Avoid companies that pile on ongoing fees or even require high up-front payments. Be wary of anyone who promises to fix your credit score. The only way to remove negative information from your credit score, is if it is inaccurate. Finally, guaranteed results are also a red flag. A company cannot guarantee that a creditor will settle your debt for any amount. This does not mean there are not reputable companies and attorneys available to assist with debt settlement, but these are three main things to be mindful of when doing your research.
But, What if I am Already Working My Debt Collector?
If so, they may be discouraging you from filing for bankruptcy. They may say that bankruptcy will negatively impact your credit score for years. Or, they will promise to handle your debt better. Do not let these companies scare you away from any other options. Take time to consider all your options! You may find that bankruptcy could be better option for you. Remember, credit card companies and their affiliates have an investment in keeping you away from bankruptcy – they want to continue to get paid.
How Bankruptcy Can Help?
While bankruptcy may seem like a scary endeavor, it is a viable option to reduce or eliminate your debt. Bankruptcy will function differently depending on which chapter you file under. The most commonly used chapters are Chapter 7 and Chapter 13. Each chapter will either allow you to discharge or come up with a repayment plan to pay off a smaller portion of your debt. Your attorney will go over which debts will be considered unsecured or secured, and the types of debts that will not be able to be discharged.
Still Need More Information?
Bankruptcy and debt settlement are not the only options available for handling your debt. So, if you would like more information as to which options will work best for you, schedule a consultation today. At the Law Office of Daniela Romero, we believe in relationships that are based on trust. Before we work together, we would like you to get to know us. We want you to be sure that we are the perfect fit for you. This will allow you to be completely comfortable sharing intimate and difficult details of your case, so we can offer you representation to the fullest extent of the law. Please, call us today to set up a free consultation.