What Should I Know About Debt Settlement
In order to settle debts in many cases, you must be delinquent on your payments.
This is because it does not make good business for a credit card company to offer a settlement to somebody who pays their minimum payments every month while the balance continues to rise. Once you stop paying on the debt, usually for at least 6 months, the debt may be charged off and sent or sold to a collection company or law firm or a collection department of the credit card company designed to recoup what they can from you and make offers for less than the full balance.
If You stop making payments and do not have funds available to settle with the creditors, you may have a civil lawsuit filed against you.
If a judgment is entered against you and you did not respond to the lawsuit or were unaware of it for whatever reason, your wages can be garnished and it will report as a judgment on your credit report. Once a judgment is entered against you, it becomes much harder to negotiate a settlement for less than the full balance.
If you stop paying on your debts, often times the late payments or charge offs will report on your credit report and stay there for up to 7 years, even if you settle with the creditor at a later date. The account should eventually be reported as settled for less than the full balance once it is settled.
If you have more than $600 forgiven by a creditor, then you may have to pay taxes on any debts that are forgiven.
Filing For Bankruptcy Doesnt Help Your Credit At All
When you file for bankruptcy, youre giving your credit the death penalty. The bankruptcy and all of the accounts included in the bankruptcy will appear on your credit report for the next 7 years. Even a few years down the road, creditors will see you as high risk.
Youll have a hard time getting new lines of credit or loans for many years. Most people understand this. However, theyre told they have no other options and have to file bankruptcy if they cant pay their debts. False!
Afccs Top 10 Frequently Asked Questions
AFCC wants you to understand both the potential benefits and pitfalls that may arise out of the debt settlement process and to have reasonable expectations regarding the outcome of your program. Below are the questions which AFCC has laid out on its own in its efforts to successfully guide consumers to the most favorable outcome when enrolling in a debt settlement program. We wanted to also include them for you.
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When You Just Want The Calls To Stop
There’s no guarantee that threatening to file bankruptcy will stop annoying creditor calls. The only sure fire way to use bankruptcy to accomplish this is actually to file a case. That’s when an order called the “automatic stay” goes into effect and prohibits your creditors from making any attempt to collect a debt.
That doesn’t mean that you don’t have options, however. Here are additional approaches to consider:
- Hiring an attorney. If you hire a bankruptcy attorney, and you inform your creditor of that fact, the creditor will have to call your attorney instead of you. Some bankruptcy attorneys will accept a small down paymentperhaps as little as $100as an initial retainer so that you can avoid the calls while saving the rest of your attorneys’ fees.
- Ask the creditor to stop. Additionally, you can write to the creditor and ask it to stop calling you. Keep in mind, however, that you might want to know what’s going on with your account. Unless you’re judgment proof , you might want to consider another alternative.
Does Bankruptcy Clear All Debts
Bankruptcy eliminates most unsecured debts. People often file bankruptcy because they are no longer able to keep up with the minimum payments on their credit cards or may be struggling in a cycle of payday loans. However, bankruptcy discharges a wide range of legal obligations including:
- unsecured lines of credit and bank loans
- financial company and installment loans
- unpaid bills
- accounts in collection
- judgments and lawsuits
- government obligations including tax debts and student loans if you have been out of school for 7 years.
There are however a few debts not discharged by bankruptcy include family responsibility arrears , court fines, traffic tickets and debts due to fraud.
An unsecured creditor is required to file a proof of claim to be eligible to receive a dividend from your bankruptcy estate. However, even if they do not file a claim, unsecured debts included in your bankruptcy that exist at the date of bankruptcy are erased.
Bankruptcy also does not affect a secured creditor. As long as you keep up with your mortgage or car loan payment, you can continue to keep that asset. If you miss payments, bankruptcy does not prevent secured creditors from enforcing their rights to foreclose on your home or repossess your vehicle. If there is equity in any property beyond any exemption limit, for example substantial equity in your home, your trustee can provide you with options to keep your house or car if you can afford the monthly payments.
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How Do I Claim Or Declare Bankruptcy
Before you file, the trustee will review all your debt relief options so you can .
The trustee will ask questions about your income, assets, and debts . If you cannot afford to repay your debts in full, the trustee may recommend bankruptcy, but they might also suggest you consider filing a consumer proposal as an alternative to bankruptcy if this makes more sense for your financial situation.
If you are considering bankruptcy, talk with a Licensed Insolvency Trustee today.
How Collection Agencies Get Your Debt
When you fail to pay a bill, the creditor will eventually sell the debt to a third-party collection agency. They make money by collecting more on the debt than paid for it, which is easy because collection companies buy debt for just pennies on the dollar. They will call, send letters, and may even report the delinquent account to the Credit Bureaus. It may seem like the only way out is to file for bankruptcy?
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What Would Happen If You Didnt Pay
What if you just ignored the calls and letters? Would the creditor sue you? No. Its very, very highly unlikely a debt collector would sue a consumer over an unpaid medical debt that they paid a fraction of the amount owed. They have tens of thousands of other consumers that are willing and able to make payments. The calls and letters will continue to come.
Pros Of Debt Settlement
There definitely are some things to like about debt settlement, such as:
- If youre organized and persistent, you can attempt debt settlement on your own. Talk to your creditors explain your situation attempt to work out terms. The fees you save can be substantial.
- If, instead, you require representation and all goes well, you can be clear of your unsecured debt in 24 to 48 months, at a fraction of what you owed somewhere between 25%-50%.
- You wont owe an add-on fee as each debt is settled thats already worked into your escrow account deposits.
- States regulate the debt settlement industry. Know your states laws regarding upfront disclosure of fees and services, as well as the risks and benefits.
- Harsh as it is, debt settlement can mean avoiding bankruptcy, which means, among other things, your plunge into fiscal calamity will not become public record.
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Should You Settle Debts Or File Bankruptcy
Asking whether you should settle debts or file bankruptcy is a common question consumers have when struggling to keep up with monthly debt obligations. The answer to whether you should settle debts or file bankruptcy depends on several factors and therefore you should take the time to learn about all of your options before taking action to tackle your debt.
Are Promises Made in TV Commercials For Debt Settlement Companies Legit?
The answer is almost always no. Most debt settlement companies including the nationwide debt settlement companies that advertise on TV or radio appeal to consumers who genuinely want to repay their debts but are looking for a magic answer to all their problems that will help them avoid filing for bankruptcy.
While many debt settlement company options sound great by offering a plan and a solution to consolidate your debts into one monthly payment, they often times fail to clearly explain to the consumer how this plan will be carried out and how it will affect you moving forward which is very important when determining whether you should settle debts or file bankruptcy.
Is The Amount I Save On Each Of My Settlements Taxable
When your creditor settles your debt, a savings of $600 or more off what you owed may be reported by your creditor to the IRS as Discharge of Indebtedness income. You may wish to consult your tax advisor to determine whether your individual circumstances may permit you to exclude any such Discharge of Indebtedness Income from your reportable income due to insolvency. For more information on tax ramifications to you personally you may also wish to consult a CPA or Tax Attorney and to refer to the IRS website www.irs.gov IRS Publication 908- Bankruptcy Tax Guide and IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness available on the IRS website.
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Parenting Rules And Provisions
You can put addition parenting rules and provisions in your agreement to make the custody situation work better.Some common provisions that parents include are:The right of first refusal, which gives a parent the first right to have the child if the other parent needs child careInformation about transportation to and from exchangesA rule that parents must provide each other parent with an itinerary when they travel with the childA rule that parents will not speak negatively about each other in front of the childA process for how parents will resolve disputesA method for making changes to the agreement as the childs needs changeThink about common problems in your situation and come up with a provision that will help and speak with your custody lawyer at Ascent Law to have things drafted perfectly.
Compare Debt Settlement Companies
Before you sign up with a debt relief company
Debt relief companies typically charge a percentage of a customers debt or a monthly program fee for their services. And not all companies are transparent about these costs or drawbacks that can negatively affect your credit score. Depending on the company you work with, you might pay other fees for third-party settlement services or setting up new accounts, which can leave you in a worse situation than when you signed up.
Consider alternatives before signing up with a debt relief company:
- Payment extensions. Companies you owe may be willing to extend your payment due date or put you on a longer payment plan if you ask.
- Nonprofit credit counseling. Look for free debt-management help from nonprofit organizations like the National Foundation for Credit Counseling.
- Debt settlement. If you can manage to pay a portion of the bill, offer the collection agency a one-time payment as a settlement. Collection agencies are often willing to accept a lower payment on your debt to close the account.
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When To Consider Debt Settlement Or Bankruptcy
If your monthly debt payments, excluding mortgage or rent, exceed 20% of your income, you have a debt problem that requires action. The seriousness of the problem, and your ability and determination to overcome it, will determine whether a debt settlement plan or bankruptcy is the better option.
Here are some scenarios in which debt settlement may provide the better path out of debt:
- Youre able and willing to negotiate with creditors or debt collectors on a settlement plan that you can afford and stick to.
- Your creditors will agree to greatly reduce your debt burden in exchange for your commitment to make a lump-sum payment.
- Your income is stable enough that you can continue to pay your mortgage or rent and other essential bills in addition to the payments required under a debt settlement, while still saving some money for emergency expenses.
Here are some scenarios in which bankruptcy is the better option:
Its important to remember that these are general guidelines, and anyone in serious debt who is weighing the pros and cons of debt settlement or bankruptcy is recommended to consult with a nonprofit credit counselor. Counselors from National Foundation for Credit Counseling – member agencies such as InCharge Debt Solutions can help you evaluate your current financial situation and the various debt relief options that may be available to you.
Bankruptcy Pros And Cons
Bankruptcy in Canada is a legal process that is governed by federal law. Bankruptcy erases debt in exchange for the surrender of certain assets and regulated bankruptcy payments.
There are several advantages to bankruptcy over other debt relief solutions.
- Bankruptcy is generally the fastest way out of debt. A first time bankrupt with no surplus income can be discharged in 9 months.
- If you face threats of legal action from your creditors, such as a lawsuit or wage garnishment, bankruptcy provides a stay of proceedings that stops these actions.
- Since it deals with unsecured debt, bankruptcy can eliminate credit card debt, bank loans, payday loans, student loans over 7 years, and taxes owing to the Canada Revenue Agency.
- Because it is governed by the Bankruptcy & Insolvency Act, the bankruptcy process is safe and relatively predictable.
On the downside, bankruptcy can become expensive if your income exceeds the government-set surplus income threshold. The base cost to file bankruptcy in Canada is around $1,800. However, bankruptcy law says you must pay one-half of every dollar you earn above the surplus income threshold into your bankruptcy estate to benefit your creditors.
If you declare bankruptcy, you also risk losing assets like your home equity or RESP unless you can pay the trustee an equivalent cash value.
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How Doesattorney Sapinski Negotiate Debt
My team at Sapinski Law Office, S.C. is experienced and professional, with a field-tested and proven system in place. I know what to do and when to do it: Knowledge + Presentation + Timing = Successful Settlement. Leaving your debt in the hands of my firm is the best way to achieve success!
Here is how I approach debt negotiation:
Youre Our First Priorityevery Time
We believe everyone should be able to make financial decisions with confidence. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.
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Can Debt Settlement Really Allow Me To Pay Back Less Than I Owe
If you are struggling to pay off your , medical bills, or other unsecured debt, you may be wondering if the advertisements you see on the TV, radio or the Web are for real. The main questions consumers ask are Can I really get out of debt for a fraction of the cost and pennies on the dollar? Will debt settlement help me get out of debt quickly, legally and safely? What are the effects on my credit rating and future ability to get a loan?
Below you will see a variety of questions and answers that we wanted to share with you. These are among the most commonly asked. By reading on, it is our hope that youll be able to make an intelligent decision as to whether debt settlement is the right choice for you.
Debt Settlement Vs Bankruptcy: Which Is Right For You
- Kaylee Kolditz
When youre in need of serious help getting your credit back on track, there are two debt relief options that are worth considering. Both debt settlement and bankruptcy will reduce or eliminate your debt, but can also negatively impact your credit in the near term. Heres what you need to know about both to consider which is right for you.
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Cons Of Debt Settlement
- While youre building your debt settlement war chest, collection contacts calls, mail, email will not cease, and they will not be polite.
- If your debt to any one lender is substantial $5,000 or more you might get sued, and if you lose in court, your wages could be garnished and/or your assets seized.
- Beware of false promises. The Federal Trade Commission lists some warning signs: upfront fees required promises of a new government program that bails out credit card debtors any sort of guarantee. There is no law saying the creditor must accept your offer.
- Your credit score will take a beating, and the settlement will remain on your account for seven years from the date of the initial delinquency.
- The IRS considers the amount of forgiven, canceled, or discharged debt as regular income. You will receive a 1099-C form and, unless you meet an exclusion or exception , youll be on the hook for taxes to be paid by April 15 of the year following the settlement.
- Because some creditors refuse to work with debt settlement firms, you still might wind up with ballooning, fee-burdened debt that forces you to file for bankruptcy.
- You may drop out before the program is complete, leaving you with larger debts.
- Its highly likely creditors with whom you settle will close your account completely.