People with multiple credit card debts have many options to try to deal with their debts. People naturally want to avoid bankruptcy. So many times, when clients come in to see me, they have already tried debt settlement. This article does a good job of summarizing the risks of Debt settlement. It can be loaded with traps.
The strategy is to stop paying on the cards, causing the collectors to settle for pennies on the dollar. But, in the meantime, your credit takes a huge hit, because you are delinquent for many months.
You end up paying a debt settlement company the whole time, so you save up enough money to make lump-sum settlement offers to the collectors. But, in the meantime, the settlement companies rack up large fees.
And, it is not guaranteed at all that the settlements will be accepted. So, you could ruin your credit, pay a settlement company large amounts of money, and still not solve your problems. And, you’ll end up in bankruptcy anyway.
All the while, the debt collectors can sue you, and garnish your wages. Once those actions happen, debt settlement companies have no power to stop the collections.
If you are able to settle the debt, you’ll also have to pay taxes on the amount forgiven. So, it is risky at best to use a debt settlement company. There are some times that debt settlement is the best way to solve your problem, such as where you are unable to file for bankruptcy, or where you have only one credit card, and your credit is bad already.
It is best to speak with an attorney before signing up with a debt settlement company, to know what is best for you. We can advise you of all your options, what will help you most, and whether Chapter 7, Chapter 13 Bankruptcy or debt settlement is best for you.
Daniel J. Winter
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois