Debt Settlement Attorney
Debt settlement means that a collector or creditor agrees to accept less than the total amount of money you owe them as full payment. This debt solution also means that collectors and creditors are not allowed to continue to reach out to you for money and you don’t have to worry about getting sued over your debt.
While debt settlement with a debt settlement attorney sounds like an excellent debt solution, it can be risky. For example, debt settlement can be an expensive and lengthy process. Some debt settlement cases last as long as two to four years, and it can destroy your credit in the process.
Even if you do successfully settle your debt, it can take multiple years and you might find that you owe taxes on your forgiven debt. Keep in mind that you will also pay some fees if you use a debt settlement company, so debt settlement should be your last resort after exploring and analyzing all other options.
Debt solutions related to debt settlement with a debt settlement attorney
Here are some of the top debt solutions related to debt settlement with a debt settlement attorney that we recommend:
How debt settlement works
Debt settlement only comes into play when you have multiple skipped or late payments and even collections accounts. Your collectors and creditors will not accept less money than you owe if they have any reason to believe that you are able to pay off the full amount of money that you originally agreed to. At this point, your credit scores will likely be very low, you’re hopelessly behind on all of your payments, and your income is not high enough to keep up with your debt responsibilities.
Debt settlement companies will negotiate with your collectors and creditors to decrease the total amount of money you owe, usually on unsecured debt like credit card debt. Debt settlement is not an option for particular kinds of debt, like a car that can be repossessed or a home that can be foreclosed on. Debt settlement companies also usually don’t settle federal student loans, but you might be able to settle those student loans on your own with an income-based repayment plan.
Debt settlement really only works if it seems like you won’t back the money you owe at all, so you simply stop making payments towards your debts. Instead, you can open a savings account and put a monthly payment into that account. Once the debt settlement company believes that the savings account has enough money for a lump-sum offer, they negotiate with the creditor or collector on your behalf to accept the lump-sum offer.
Risks associated with debt settlement
Keep in mind that there are some risks associated with debt settlement, including:
- Your credit will take a hit. If your credit score is not already super low or you are not already delinquent on your accounts, you definitely will be once you start diverting your debt payments towards your debt settlement account. These delinquent accounts and debt charged off by lenders will continue to appear on your credit reports for seven years.
- Interest and penalties will continue to accrue. Interest and penalties will continue to accrue on your accounts. You will probably also be hit with late charges and penalty fees, and interest will continue racking up on your accounts.
- There’s no guarantee of success. Keep in mind that there’s no guarantee that a debt settlement company can actually resolve your debt for much less, since some creditors don’t actually negotiate with these companies. Most customers need to settle at least four accounts to receive a net benefit with the debt settlement method.
- You have to pay a fee when a debt settles. Companies can’t charge you upfront fees, but many debt settlement comapnies charge a percentage of each debt that they settle, based on the balance of the debt when you started the program.
- You will pay extra fees. In addition to the fees you pay to the company once they settle a debt, you might face additional fees, like a setup and monthly fee to maintain the account set up under the debt settlement program.
- Forgiven debt might be taxable. The Internal Revenue Service, or IRS, usually sees forgiven debt as income, so you should talk to an attorney or tax professional about any extra tax obligations you might take on if you do settle your debt.
Alternatives to debt settlement
A Chapter 7 bankruptcy is almost always a better option for borrowers or debtors who are overwhelmed by unsecured debt like credit card debt. While a bankruptcy can have a negative impact on your credit history for years, the rebuilding process can start immediately.
Consultations with a bankruptcy attorney are usually free, but you do need to pay legal and filing fees if you decide to file a Chapter 7 bankruptcy. You should really only consider debt settlement if Chapter 7 is not an option.
If you either don’t want to file for a Chapter 7 bankruptcy or you don’t qualify for one, then we recommend considering a debt management plan provided through a nonprofit credit counselor. Going through the debt management route will not usually decrease the amount of money you need to repay, but it could decrease your monthly payments by either extending the amount of time you have to repay your debt or by decreasing your interest rate. Debt management also has less of an effect on your credit than debt settlement or bankruptcy.
What to do if you decide to try debt settlement
If you do decide that debt settlement is the best option for you and you want some help pursuing this option, here are a few tips for choosing the best company:
- Check with the Better Business Bureau or BBB to see if the company has any complaints
- Stay away from companies that seek money in advance
- Avoid companies that promise to help you challenge debts and have them declared invalid
Using a debt settlement company is not always the right option, so we suggest using a lawyer or trying debt settlement on your own. We recommend speaking to a debt settlement attorney at the Van Horn Law Group to learn more about debt solutions related to debt settlement.
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