Debt Settlement

Debt Settlement is one non-bankruptcy alternative to solving your debt crisis. It involves asking your creditors to accept less than what they want, canceling part of the debt. Hopefully debt settlement will give you a chance to pay at least part of your debt. You can do this by yourself or by using a credit counseling agency to help negotiate for you. In general, you can only settle unsecured debt – that is, debt that is not backed up by collateral, like car and other property. Settlement of tax debt in an entirely different specialty. Debt settlement agency agencies usually cannot help you with secured debt and taxes.

There are serious risks involved in trying to settle your debts. Though creditors would love to get at least some payment on your debt, they will most likely still report the account in default. Debt settlement, like bankruptcy, damages your credit score. Most likely, your credit score will be damaged by debt settlement as much as by bankruptcy.

Another problem is that, if you are not paying your debt as you originally agreed, your creditor can still sue you. This is a particular risk when you use a debt settlement agency because you may have no idea whether your creditors accept the terms offered by the agency. Our firm regularly helps people who have been diligently paying monthly payments to debt settlement agencies, only to be sued by a creditor and suddenly face a wage garnishment.

In addition, the IRS considers a debt cancelled (outside of bankruptcy) over $600 to be taxable income. That means you might get a Form 1099 reporting that cancelled debt as income, as if it was money you had earned, and you will be required to pay tax on it. The IRS requires you to report the cancellation of debt as income in any event.

Debt settlement can be accomplished by offering a lump sum to a creditor or negotiating new payment terms. Creditors have a lot of incentive to settle a debt for a lump sum. The creditor takes a risk when it relies on your promise to pay in the future and cash they receive right now can be invested to produce income. However, a creditor might be willing to accept any payment arrangement if the debt would otherwise be lost in bankruptcy.

You can try to settle your debt by yourself or use a debt settlement agency. These agencies are poorly regulated. Though the temptation of getting out of debt without the “dishonor” of filing bankruptcy is strong, most experts agree that “buyer beware” is the best advice when considering debt settlement agencies. That said, you would probably have more success hiring someone to help settle your debts rather than trying it yourself. The process is too emotional. A person working on your behalf can say things you’d never want to say about your own inability to pay your debts. Non bankruptcy debt relief is certainly something anyone in financial distress should consider, but there is a great peace of mind in having the federal court system oversee your case to a solution with finality and certainty.

Medical Bankruptcy alternatives