What kind of debts are generally eligible for debt settlement?
Most types of unsecured debt. This includes credit cards, department store cards, personal loans, medical bills, and accounts with collection agencies. Debts not eligible include mortgages, student loans, child support, and alimony debts.
Who is eligible for debt settlement?
In general, anyone in a state of “financial hardship.” This is broadly defined and could include many different financially damaging events, including loss of employment reduced income, divorce, severe medical bills, or a variety of other circumstances that cause someone to accumulate too much debt and an inability to pay his/her bills.
How does it work?
Debt settlement calculates a monthly amount you can afford to pay towards your unsecured debts. That amount is placed in a third party trust account and builds up each month. Once enough funds have been saved up, Debt Help Lawyers start working with your creditors on settling for less than you owe.
Bankruptcy & Debt Settlement
Bankruptcy law provides bankruptcy debt relief for debtors who are unable to pay their creditors, by liquidation or supervision of their assets. Bankruptcy can be entered into voluntarily by a debtor, or it can be initiated by creditors. Bankruptcy proceedings are supervised and allow the interests of all creditors to be treated equally. Bankruptcy may also discharge certain debtors of all financial obligations, even if the debts have not been paid in full.
|Chapter 13||Debt Settlement|
|Average percentage of debt to be repaid||30% – 50%||30% – 50%|
|Duration of program||3-5 years, with 5 being the new standard||2-3 years, depending on monthly budget and other available financial resources|
|Control of program||The court has full control||The consumer keeps control|
|Privacy||Becomes public record||Privacy retained; not public record|
|Duration of negative impact to credit||Bankruptcy remains on credit report for 10 years. May affect future job or loan applications beyond that period||Negative marks remain on credit report for up to 7 years, but most consumers recovered credit-worthiness within 1-2 years after completing the program|
|Creditor Lawsuits||Blocked by bankruptcy filing||Creditors may still take legal action to collect, but lawsuits can normally be avoided through negotiation process|
|Flexibility||None; must pay fixed monthly amount determined by the court||Very flexible; consumer’s budget dictates pace at which settlement funds are built up|
|Living Expenses||Allowable living expenses determined by the court based in IRS schedules||Living expenses not disclosed to creditors except in rare instances to close a negotiation|
There are two basic types of consumer bankruptcy proceedings. The most common type, Chapter 7 Bankruptcy, is called liquidation. This involves the appointment of a
trustee who collects the debtor’s property, sells it and uses the proceeds to pay off the bankruptcy debt. Chapter 13 Bankruptcy involves the appointment of a trustee to supervise the debtor’s assets, and allows him to use future earnings to pay off creditors.
Will the creditors start calling and harassing you?
Yes. As someone goes delinquent with their accounts, especially in the beginning, they will get creditor calls. This is why it is critical you work with Debt Help Lawyers rather than non-lawyer debt settlement companies as only Debt Help Lawyers can meaningfully enforce your Fair Debt Acts rights.
What about lawsuits and wage garnishment?
Of course, creditors have the right to sue you to recover their money. But the purpose of the lawsuit is to get a default judgment against you or to force a settlement. Debt Help Lawyers can aggressively intermediate debt accounts that have reached this stage, and can often still successfully settle these debts for less than you owe. Given the choice of spending countless hours fighting your case, debt collectors will prefer amicable payment arrangements arranged through a Debt Help Lawyer.
Regarding garnishments, the creditor generally has to sue you first, obtain a judgment, and then file for a garnishment action.Can you do it yourself?
Yes. However, you lack the leverage with your creditors Debt Help Lawyers have built through years negotiating with creditors and debt collectors. Debt Help Lawyers also sue debt collectors who violate your FDCPA rights, so collectors are on their best behavior when dealing with professionals rather than “do-it-yourself’ers.”
How long does debt settlement take?
How long it takes to eliminate your debts is mainly dependent on your own financial situation. The more you can save each month, the faster you can pay your debts and be debt free. But every situation is different and you should contact a Debt Help Lawyer for a free case review.
How much does debt settlement cost?
The cost of debt settlement varies with each individual and their unique situation. Still, any debt settlement program must be designed to meet both long term goals and short term budgets. With this in mind, the cost of debt settlement is generally determined by 5 main factors:
- How much money you owe to individual companies, and in total.
- How late you are in paying your monthly minimums.
- Which companies you owe money to.
- How many companies you owe money to.
- How much you are able to save each month to pay off your debt.
Once these variables are fully understood, an accurate estimate of what debt settlement will cost you can be provided. Contact Debt Help Lawyers today for a a full debt relief consultation.
What is the difference between debt settlement and debt consolidation?
Debt consolidation is a loan, used to payoff current debts for a longer term. Debt settlement is a negotiation where debts are paid for less, allowing you to satisfy your current obligations without incurring more debt. (Most people should not acquire more debt to try and get out of debt. The last thing people with credit problems need is more debt.)
What happens to your credit?
Your credit score will decline during debt settlement, exactly how much will depend on your original circumstances. Some of the accounts you place into negotiation are likely to “charge off”, which will reflect negatively on your credit. However, once a debt is settled, the settlement is reported to the credit bureaus, which is often more positive as compared to unresolved delinquent debts or bankruptcy. After all the debts have been settled, the credit score can begin to improve since the negative items have been resolved.
What are the tax consequences?
Creditors are supposed to report canceled debts exceeding $600 to the IRS, and you are supposed to report the same as income on your annual tax return. However, you are permitted by the IRS to write off any “income” from certain canceled debts so you may not have to pay taxes on the forgiven amounts. You should consult your own tax advisor for advice specific to your situation.