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In theory debt settlement is simple: the debtor negotiates with the creditor to reduce a debt to an amount that is regarded as payment in full. It sounds honest enough: the debtor cannot afford to repay a debt, so the creditor agrees to accept a reduction. The creditor is paid something and the debtor avoids bankruptcy.

In practice debt settlement is a nasty game of chicken. The debt settlement company advises the debtor to stop making monthly payments to the creditor. In response, the creditor pressures the debtor to pay through harassing telephone calls, damage to the debtor’s credit report, mounting interest and fees, and perhaps legal action. The resolution comes when one side blinks: either the creditor is convinced that it better take a settlement or risk discharge in bankruptcy; or the debtor realizes that his or her credit is ruined and actually files bankruptcy.

Debt settlement is big business, but many debt settlement companies have caused big trouble for their clients. Take for example Debt Relief USA. This company, like many debt settlement companies, advised its customers to stop paying its creditors and instead deposit money into a Debt Relief USA settlement account. This money, held by Debt Relief USA, was to be used as settle funds for the individual’s debts. Customers were assessed fees for services including burdensome “administration fees” and monthly “maintenance fees” that further damaged its customers’ financial situations. When a debt was settled, the Debt Relief USA charged a 13 percent “negotiation fee.”

In 2009 Debt Relief USA filed a Chapter 11 bankruptcy and claimed that it owed its clients $5 million from these settlement accounts. In December 2010, the bankruptcy court approved a $3.7 million disbursement to Debt Relief USA’s clients. The case was also converted to Chapter 7 and Debt Relief USA is no longer conducting business.

Bankruptcy attorneys regularly see the damage caused by debt settlement companies. In some cases money is not returned to debt settlement customers, or the company itself files bankruptcy, or the individual’s credit is destroyed. Before agreeing to any debt relief program, discuss your financial situation an experienced bankruptcy attorney. There are powerful federal laws that can protect you from overwhelming debt, and a bankruptcy attorney can review your legal options without risking your cash.
 

For a person in financial trouble, examining options can mean the difference between a fresh start and a false start. Before you decide to use a debt settlement program to resolve your debt problem, arm yourself with information and make a wise decision. Below are six reasons that the federal bankruptcy laws may be a better choice than a debt settlement program:

First, the debt settlement process can take many months or even years, and your credit is harmed each month until the debt is settled. On the other hand, negative reporting of debts discharged in bankruptcy ends on the date you filed your bankruptcy case. Discharged debts are reported as “discharged in bankruptcy” with a “zero balance.”

Second, debt settlement programs typically settle your debt for 20% to 80. Creditors in most bankruptcy cases are paid nothing.

Third, any settled debt will have tax consequences and you may have to pay the IRS. A discharged debt has a special tax exemption and there is no tax liability.

Fourth, during the debt settlement process you may be sued, even while you or your representative attempts to settle your debt.  During bankruptcy all lawsuits are prohibited without the express permission of the bankruptcy court.

Fifth, many debt settlement companies are disreputable and lack a solid financial basis. You may lose your money and get nothing in return. The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress. Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors.

Finally, the debt settlement process can take more than a year. The general rule is: the longer you don’t pay, the sweeter the settlement. Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy. The typical chapter 7 bankruptcy case takes less than six months.

If you are considering a debt settlement program, you owe it to yourself to investigate your options and speak with an experienced bankruptcy attorney. The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.

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Examining your options is important for anyone experiencing debt problems.  If you are considering bankruptcy or debt settlement to resolve your financial difficulties, investigate the consequences of each process before making your decision.  Below is some information about debt settlement companies and bankruptcy that you may not know: Free Consultation 

Debt Settlement:  The debt settlement process will harm your credit for years.  Creditors will report your delinquent account until it is paid.  Your report may identify settled accounts as paid less than 100%, which also adversely affects your credit score. 

Bankruptcy:  Any debt included in a bankruptcy appears on your credit report as discharged with a zero balance from the date you filed your bankruptcy case.  Bankruptcy stops adverse reporting so your credit report can improve.  Free Consultation 

Debt Settlement:  The typical debt settlement account will resolve your debt with a lump sum payment of between 20% and 80% of the debt.

Bankruptcy:  In most bankruptcy cases you pay nothing to unsecured creditors. 

Debt Settlement:  Any settled debt will have tax consequences and you may have to pay the IRS. 

Bankruptcy:  There is no tax liability for a debt discharged in bankruptcy. 

Debt Settlement:  You may be sued while you or your representative is attempting to settle your debt.

Bankruptcy:  All lawsuits are prohibited during your bankruptcy case. 

Debt Settlement: Some debt settlement companies are disreputable and the process is even illegal in some states.

Bankruptcy:  The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress.  Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors. 

Debt Settlement:  The debt settlement process can take more than a year.  The general rule is: the longer you don’t pay, the better the settlement.  Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy. Free Consultation

Bankruptcy:  The typical chapter 7 bankruptcy case takes less than six months. 

If you are struggling with debt, investigate your options and speak with an experienced bankruptcy attorney.  The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.