What Does a Debt Settlement Firm Do?
Debt settlement agencies like to advertise on television that they will be able to erase your credit card debt for pennies on the dollar. But more often than not, this is an exceptional case. Most likely a debt settlement firm wont be able to get you credit card debt help like they claim.
Debt management, unfortunately, has been working with little to no regulation–meaning they are able to make all sorts of claims in advertisements without ever telling you what they actually do. For the most part, a debt management company will ask you for an upfront fee, take your money, and a few months to years later attempt to negotiate your debt. Throughout the entire debt settlement process creditors will be able to take whatever legal action they choose.
Debt settlement firms don’t want you to know that you can negotiate your debt yourself. Here’s how it works: most often when you fall behind and need credit card debt help, a different company buys your debt from your credit card company. The company that owns your debt will most likely accept a payment that is less than the full amount of debt you owe because that company paid less than the full amount for the debt as well.
Debt settlement companies also don’t want you to know that their services usually have the same impact on your credit history as bankruptcy but they don’t provide nearly the same amount of benefits. Unlike bankruptcy, debt settlement does not give you protection against harassing creditor calls, wage garnishments, and lawsuits.
Adding insult to injury is the fact that you are going to be taxed on however much the debt settlement firm can erase of your credit card debt. Lets say you have $2000 of debt and you get your debt negotiated down to $1000, the $1000 difference is considered taxable income. The federal government will tax any portion of your credit card debt that as been erased in the same way that they tax a paycheck.
Finally, debt settlement can’t stop wage garnishments, harassing calls, or law suits. Regardless if the debt settlement company can actually erase your credit card debt, you can still have your wages garnished or be sued.
How can you avoid this problem? Don’t buy into the inflated advertising of debt management companies and instead look for a respected bankruptcy attorney. A bankruptcy attorney will be able to provide you federal legal protection from your creditors. What does that mean? When you decide to go for bankruptcy you wont have to worry about wage garnishments or creditor phone calls anymore. A bankruptcy can make sure your home gets protection from foreclosure.
You are going to need to figure out if you want a Chapter 7 or Chapter 13 bankruptcy, and that’s where a good bankruptcy attorney comes in. If you are considering bankruptcy you need to know that the best attorneys will provide lots of free information before they ever bring you in for a consultation.