The inability to pay your bills due to unforeseen circumstances can be mind boggling. Fear not, options are available. One such option is debt settlement, also known as debt negotiation. Debt settlement is the process by which a debtor and creditor agree on a reduced balance settlement that will be considered payment in full.
Debt settlement is where a debtor and creditor agree on a lesser sum to be accepted as payment in full. If you have ever been in that situation, this may seem like a magic bullet. Beware, there is very little regulation in this industry which makes it somewhat perilous for the consumer.
Fraud is a very big problem. Theft is a close second. Due to lack of regulation, unscrupulous companies often pop up claiming to fix everything almost overnight. They charge you a large sum upfront and disappear with it or they lack the necessary skills to help you.
Before deciding which path to choose, speak with an experienced bankruptcy attorney. Their expertise can help you decide which option better suits your need. The criteria for each varies somewhat. Although the end goal is to rid you of unpaid bills, neither choice offers a one size fits all solution.
Making a list of the differences between the methods will also make the choice simpler. Chapter 7 bankruptcy will enable you to wipe the slate clean immediately. Initially, costs are less than those of debt negotiation and the process is generally much shorter; months compared to years. The possibility of losing personal assets and your home is greater, but once the debts are eliminated, you are free to begin rebuilding your credit.
In contrast, settlement will exact far more time and expense. The time frame from beginning to end can be as long as four years. However, you will be protected from unfair, ill collection practices and bankruptcy. Fees for late payments and going over your credit limit will be eliminated. Instead of making multiple monthly payments to each creditor, you will make only one to the settlement company each month. Be aware that money you saved through negotiations is considered taxable income by the IRS. Significant savings may result in a higher tax bill.
Do some research before choosing a company to handle your case. Inquire about all fees upfront. Ask friends for recommendations. Request references from the companies you are considering. Reputation and a proven track record are important factors. Also look for accreditation and certification from at least one debt regulating organization like the IADPA or the TASC and the BBB.
Regardless as to your choice, your credit score will sustain damage. Fortunately, it is not permanent. Be responsible and it will be repaired over time.
The federal government does not regulate these types of companies, but the Federal Trade Commission has recently imparted a few rules. Upfront service fees cannot be charged until at least one account is settled and there is a written agreement between you and your creditor.
The state of Illinois has recently enacted the Consumer Proposal Toronto to provide protection to its citizens. The act provides that settlement fees will not exceed 15% of the total value and upfront fees are to be capped at $50. They are the only state in the nation to have such an act.
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