When you find yourself struggling to pay your credit card bills or falling behind on debt, it can seem overwhelming. It is a good idea to find a bankruptcy lawyer who can give you the proper advice. The worst thing you can do is continue struggling, and not seeking out any help to manage your debt. If you are facing debt, there are a lot of good resources on our website to help you decifer which route to go. Our Staten Island bankruptcy lawyers and New Jersey bankruptcy lawyers can help you, by giving you a free bankruptcy or debt consultation. This article will explain what debt settlement companies do and what you need to know about entering into a debt settlement program.
Debt settlement companies are not the same as credit counseling companies or debt lawyers. A debt settlement company will work with your creditors to negotiate a certain portion of debt you will have to pay back. Debt settlement companies won’t tell you that for your credit card companies to work with them, you will have to fall behind on your bills. This means that even though you may not want to file bankruptcy, because your worried about your credit score, debt settlement will have the same impacts as bankruptcy. As you continue to be late on your monthly payments, late fees, interest and penalties will continue to accrue. When you have fallen far enough behind the debt settlement company will contact your crediors and settle for a percentage of the total debt you owe. Keep in mind, that as your accounts go into delinquent status, you run the risk of having credit card companies suing you and getting judgments against you. Once a judgment is filed against you it can last for up to 20 years. Moreover, to enforce a judgment creditors will garnish wages, freeze bank accounts, and put liens on any real property.
Bare in mind, that as you settle these debts there will be tax consequences. The IRS treats forgiven debt as taxable income. This means that you will be required to pay taxes on the forgiven amount of debt.
Below are 7 Things Debt Settlement Companies Won’t Tell You
1. Debt Settlement Companies are Scams
When you speak with a debt settlement company they will make it sound like debt settlement is the best thing in the world and not to file for bankruptcy or speak with any lawyers.
Keep in mind, these people are sales people. They do not have your best interest at hand. The average consumer who rolls into a debt settlement company doesn’t even complete the program. As the debt keeps going up and they don’t have the money to offer to negotiate the debt they continue to fall further and further behind. Chapter 7 bankruptcy, wipes out your debt completely. You don’t have to worry about struggling to make payments for months and continuing to fall behind.
Consumers often end up in a far worse situation than had they just filed bankruptcy. Aside, from trying to come up with the money to try and negotiate with your creditor’s you will also have to pay high fees to these debt settlement companies. Keep in mind, that most of the money you are putting into a debt settlement account is going to their fees instead, of paying the actual creditor.
2. Debt Settlement Companies Can’t Stop Creditors from Suing you
A debt settlement firm can’t stop creditors from suing you. The New York City Bar Association reported that one-third of debt settlement consumers faced lawsuits from their creditors andin some cases, consumers had no knowledge they were being sued until they recieved a wage garnishment. Only a lawyer can stop you from being sued. These debt settlement companies can only stop a lawsuit if you have the money to pay to negotiate your debt.
3. Debt Settlement Fee Structure
Most debt settlement companies will have you put money into an escrow account each month. This money will then be used to settle your debts. Keep in mind, that it is illegal for debt settlement firms to take any money from you before they have settled your debts. As they settle your debts one by one, the debt settlement companies can collect a fee. Most states have no regulations about how much debt settlement companies can charge.
4. Debt Settlement Companies Will Not Save Your Credit Score
Consumers may think that debt-settlement will do less damage to their credit score than filing bakruptcy, but this is not true at all. The debt settlement process encourages consumers to stop paying all of their bills so that they fall behind. Even just falling behind 30 days will cause a huge impact on a credit score. Moreover, most credit card companies won’t even negotiate with a debt settlement company until you are 90 days behind on your bills. If a consumer settles a debt for less than the amount owed, the credit reporting agencies note that fact for up to seven years from the first delinquency on a credit report. Meanwhile bankruptcy stays on a credit report for 7-10 years.
5. You may Still End Up Filing Bankruptcy
Debt settlement companies will try to push hard against you filing bankruptcy. However, as soon as consumers can’t settle their debts or the credit card companies get a judgment against them, there attitude towards filing bankruptcy completely changes. Many will end up telling their clients that they should consider filing bankruptcy after wasting months in a debt settlement plan. It is sad that many people sign up for debt settlement companies, waste months paying, and then end up filing bankruptcy anyway.Had they filed for bankruptcy in the first place they could have started saving and rebuilding their credit score.
Bankruptcy provides a legal way to get out of debt. Once you file bankruptcy the debt is eliminated and creditors can’t go after you. Unlike debt settlement, interest, fees and penalties will not accrue.
6. Debt Settlement Companies Can’t Settle All of Your Debts
Debt Settlement firms generally work with people who have unsecured debts. Unsecured debts are debts such as credit card bills, medical bills and unsecured personal loans. The wont deal with auto or mortgage loans.
Moreover, they can’t guarantee any settlement arragement. Many people will end up paying these payments for months and then drop out. The fees these companies take are not refundable.
7. Debt Settlement Lawyers Won’t Really Represent You
Debt Settlement companies will sometimes say that their attorneys will represent you. They do not have real attorneys. Many are just getting paid to use their letterhead. Debt Settlement firms have a fee structure that seems unethical. These companies will pay lawyers to use their letterhead so they can say that an attorney works with them. In reality, the attornwy really has nothing to do with their debt settlement company except for getting a payment each month. There are many real debt lawyers that can help you settle your debt, that are not associated with debt settlment programs. You should not assume that when you sign up with a debt settlement company you will recieve any real advice from a lawyer. A good lawyer will ask you personal questions about your finances, give you different options and tell you which route they think is best for your speicific financial situation. They will also give you reasons as to why one may be better than the other rather, than just getting you to sign up.
Karra L. Kingston Esq. is a debt lawyer. We have worked with many people in Staten Island, New York and New Jersey who are struggling with debt. We have helped people file bankruptcy and settle their debts after doing an in depth review of their financial situation. If you are thinking about signing up with a debt settlement company call us at (973)-979-9078 and Karra@klkbankruptcylawyer.com.