When an individual is facing bankruptcy, as many Americans are today, most people usually will search for an alternative to filing bankruptcy. There are many ads on TV and the radio warning consumers not to file bankruptcy because of all the negative ramifications. They also feed into the concept that the debtor will be doing the right thing by paying their debt back. Most of them offer to settle your debt for pennies on the dollar without the negative impact on your credit report like bankruptcy. The problem with this whole thing is that it rarely works. While the debtor is sending them their money to hold and negotiate with creditors, many consumers go into default on their credit cards. You know the story from here, when you go into default your interest rate shoots to the max, along with late charges and additional late fees and on and on. While the debt settlement is still in process, the creditor continues on suing the debtor to get a judgment against them and start garnishing their wages. If the debt settlement company finally negotiates a settlement offer, the debtor will be paying on the new balance, with all the added charges. The final nail in the coffin is, the debt settlement company wants to be paid for all this they did for you. This all begins from the catch phrase, let us save you thousands on your debt without filing bankruptcy.
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Settling your debts instead of filing bankruptcy almost sounds too good to be true. That's because it is too good to be true when you compare the amount of debt that is settled compared to your current income. Most people think that if they can avoid a bankruptcy filing that it could save some time and money, debt settlement must be good. If you or someone you know is considering debt settlement here are a few questions that you should ask the company you are considering before hiring them.
Ask if they are represented by a local attorney that would be available to help you if necessary. If they claim to have an attorney working for them, they should be available for you to speak to. Will I be sent a 1099C from any of the creditors? Sometimes, the debt that is forgiven can be taxable income to you. Find out if the creditors are going to send out a 1099C at the end of the year, making you owe taxes on this phantom income. Can you keep the money in your bank until a settlement is negotiated? Typically, an individual needs to save up the funds to make debt settlement offers to the creditors and someone has to hold the money. Most companies want to keep the money for you, but if it's your money you should be able to hang on to it until the settlement deal is worked out. Will using debt settlement stop lawsuits and judgments? It's hard to save up money for a negotiated debt settlement if your creditors are not cooperating by trying to garnish your wages, attach your bank account and put liens on your property. Will the debt settlement company be able to stop the creditors from accruing interest on your debt? If they can't negotiate with creditors to stop the late fees and accruing interest, then just do the math and you'll figure out why this doesn't work. Will they take their fee after the negotiation has been completed and paid? And if there are problems is there a refund available? Most debt settlement companies have the payment schedule set up that they get paid first. This is not good, because if something changes in your income, the settlement company will still get paid even though the debt was never paid on.
If you're considering debt settlement, always check out everything about the company before you hire them through resources like the Better Business Bureau. After considering the pluses and minuses of debt settlement it seems to me that filing bankruptcy is a much better option. If you're trying to protect your property and catch up on your debts, bankruptcy offers Chapter 13 which covers all the bases and gives you protection from the automatic stay immediately after filing. The automatic stay will stop all collection activity and contact by the creditors. On the other hand, if you have a large amount of unsecured debt like credit cards and medical bills, Chapter 7 bankruptcy is king. Chapter 7 also has the protection of the automatic stay along with the power to discharge all unsecured debt. It also has decent exemption amounts to protect the assets of the debtor. If you're in debt and considering all the options consult with a bankruptcy attorney to see if filing bankruptcy will work for you. Let the bankruptcy attorney help you get on the road to becoming debt-free.
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