If you are considering hiring a debt settlement company, you should consider the decision carefully. I have considerable experience working with debt settlement companies in my debtor defense practice. I must say that my view of these for profit debt settlement companies is not particularly positive. Sadly, many of my clients have paid thousands of dollars to a debt settlement company only to have a lawsuit filed by a creditor who is not receiving payments filed against them. And, in most cases, we have no defense to raise against the lawsuit. The only alternative at this point for many clients is to file a Chapter 13 bankruptcy if they own property or a Chapter 7 if they don't. I once had a client who owned real estate with a value of approximately $150,000 who had two judgments against him for approximately $25,000 while working with a debt settlement company. Even though he was on Social Security disability, he had to file a Chapter 13 bankruptcy to protect his real estate, which could have been seized and sold to satisfy the judgments. Below are some thoughts that may help you in deciding whether to hire a debt settlement company.
Some of your creditors may also refuse to work with the debt settlement company you choose. In many cases, the debt settlement company will be unable to settle all of your debts.
Debt settlement companies often claim they can negotiate with your
creditors to reduce the amount you owe. However, before working with a
debt settlement company, you should remember: Debt settlement companies often charge expensive fees. Debt settlement companies typically encourage you to stop paying
your credit card bills. If you stop paying your bills, you will incur
late fees, penalty interest and other charges, and creditors will likely
step up their collection efforts against you. Unless the debt settlement company settles all or most of your
debts, the built up penalties and fees on the unsettled debts may wipe
out any savings the debt settlement company achieves on the debts it
settles. Using debt settlement services can have a negative impact on your credit score and your ability to get credit in the future.
If you do business with a for-profit debt relief company, the company
may tell you to put money in a dedicated bank account, which will be
managed by a third party. You may be charged fees for using this
account.
Consider as an alternative to a debt settlement company consulting with a non-profit, consumer credit counseling
service. These organizations will attempt to work with you and your
creditors to develop a debt management plan that you can afford, and
that can help get you out of debt. They usually will also help you
develop a budget and provide other financial counseling.
Also, you may want to consider consulting a bankruptcy attorney, who may be able to provide you with your options under the law. Some bankruptcy attorneys will speak to you initially free of charge (we don't charge for an initial consultation).
You could owe taxes on debt that is forgiven. If a portion of your debt is forgiven by the creditor, it could be
counted as taxable income on your federal income taxes. You may want to
consult a tax advisor or tax attorney to learn how forgiven debt affects
your federal income tax.
You could end up further in debt than when you started. Most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate
and to collect the funds required for a settlement. This can have a
negative effect on your credit score and may result in the creditor or
debt collector filing a lawsuit while you are collecting settlement
funds. I see this happen frequently in my practice. And if you stop making payments on a credit card, late fees and
interest will be added to the debt each month. If you exceed your credit limit, additional fees and charges may apply. This can cause your original debt to increase.
Don't do business with a debt settlement company if it: (1) Charges any fees before it settles your debts; (2) Touts a "new government program" to bail out personal credit card debt; (3) Guarantees it can make your debt go away; (4) Tells you to stop communicating with your creditors; (5) Tells you it can stop debt collection calls and lawsuits; or (6) Guarantees that your unsecured debts can be paid off.
Also, you may want to consider consulting a bankruptcy attorney, who may be able to provide you with your options under the law. Some bankruptcy attorneys will speak to you initially free of charge (we don't charge for an initial consultation).
In conclusion, if you are considering hiring a debt settlement company, think the decision through and consider your options before signing up.
(502) 245-9100
