Our debt settlement attorneys help people experiencing financial hardship settle debt for less. Read answers to some commonly asked questions about debt settlement.
What kind of debts are generally eligible for debt settlement?
Most types of unsecured debt. This includes credit cards, repossessions, 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.
Am I a good candidate for debt settlement?
If you can only manage to make your minimum payments every month you may not be a good candidate for debt settlement. This is because the debt settlement process requires you to put away money every month to build up a “war chest” that debt negotiation attorneys can use to settle your debts. The idea is to protect you from creditor and bill collector harassment while you save these moneys, then start tackling each debt with your savings.
Why should I hire a debt settlement attorney?
You can negotiate to settle your debts with your creditors on your own, but there are several significant advantages to hiring a debt settlement attorney to represent you:
- A good debt law attorney can fully analyze your financial situation and provide you with sound practical advice.
- A lawyer with debt relief experience can go over all your options and help you determine if settlement is the best way to proceed for your individual situation.
- A debt settlement attorney will have experience in negotiating debts with creditors and knows how to deal with them to arrive at the lowest settlement amount.
- If a lender, credit card company, third-party debt collector, or any type of creditor decides to take legal action against you to collect a debt, your attorney can defend you in court.
- If a creditor or debt collector has violated the Fair Debt Collection Practices Act (FDCPA) or other state or federal law enacted to protect consumers, a debt lawyer can protect your rights and pursue financial compensation as well as the cost of legal representation from a collection agency who has violated the law.
Debt settlement has advantages and disadvantages. Our knowledgeable attorneys can help you determine if this is the most effective debt relief option for your situation.
How does settling credit card debt work?
To settle credit card debt, your attorney makes an offer to the credit card company to settle for a lesser amount than is owed on the account. If the company accepts your offer it will then report the settlement to the credit reporting companies, now showing a zero-balance owed.
A credit card company might accept a settlement offer if you are seriously behind on payments. In many cases, it costs less for them to accept a reduced payment amount than it would cost to go through collections, file a lawsuit against you, obtain a court judgment, and then attempt to collect on the judgment.
Credit card companies also know that consumers in financial distress often have the option to file Chapter 7 bankruptcy, in which case the debt will typically be discharged. They accept a settlement offer to attempt to get some amount of the balance, rather than nothing.
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.
Will the creditors start calling and harassing me?
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 I negotiate debts myself?
Yes, you can certainly work directly with your creditors to settle your debts, particularly if your debts are few and amount to less than $10,000. However, our attorneys are skilled debt negotiators who know how to handle creditors effectively, and pursue the most favorable settlement amount. Debt collectors are aware that individual consumers are less able to negotiate better terms, due to lack of knowledge about the process. Your best chance for better settlement terms is to have an experienced debt lawyer in your corner and collectors are on their best behavior when dealing with professionals rather than “do-it-yourself’ers.”
Are loan modification and loss mitigation types of debt settlement?
Sort of… Debt settlement works best with unsecured debts, and loan modification and loss mitigation are strategies that work for secured debts like your home.
A Loan Modification, otherwise known as mortgage modification, mortgage loan modification, or home loan modification is the process of modifying your existing loan to make your payments more affordable. The purpose of a loan modification is to provide you with a mortgage payment you can afford. It’s actually very similar to a mortgage refinance but instead of finding a new mortgage that you can afford, this just modifies your current mortgage into something you can fit into your budget.
Loss mitigation is a process that often goes along with loan modification. It is used in an attempt to lessen the amount of damage typically caused when you default on your mortgage. Essentially, new terms are agreed upon by both the lender and the borrower that ensures the lender receives their money back and the borrower can make their monthly payments.
Will debt settlement affect my credit score?
Yes, like credit counseling and bankruptcy, debt settlement will damage your credit report and impact your FICO score. However, if you have crushing debt and have been unable to make on-time payments, or are just making monthly minimum payments, your credit score has already been damaged. In some cases of delinquent payments, settling a debt typically has an overall positive effect. Settled accounts and zero balances look better on a credit report than unresolved debts and delinquent payments, and once a debt is settled, the settlement is reported to the credit bureaus and the credit score can begin to improve once the negative items have been resolved.
What are the tax consequences of settling a debt?
If you settle a debt for less than the original balance and the difference is greater than $600, the creditor may send you a 1099c, after which you may have to report the difference to the IRS as income. You should consult a tax professional about these issues. However, a debt collector’s IRS 1099 notification letter can violate fair debt laws. The typical scenario is you receive an official looking letter that reminds you of a debt that you have failed to pay. The letter purports to be a 1099 from debt collector. It then refers to the creditor’s “right to forgive this debt and submit a Form 1099 to the Internal Revenue Service.”