Online Calculator | Settling Debts Can Help Avoid Bankruptcy

Settling Debts Can Help Avoid Bankruptcy

Debt settlement companies – sometimes specialized financial services or law firms – may make you believe that only they can reduce your debt and help you out of financial hardship.

But that isn’t true, and when you read the fine print on the agreements from many firms, you may find that while they’ll manage an account and talk to creditors, they won’t even keep creditors from filing judgments against you.

Debt settlement companies are having very good business nowadays because of rising unemployment levels, high interest rates on unsecured loans and overextended credit. If you find yourself struggling to make payments and unable to reach anyone that can help you at your creditor’s customer service number, it is easy to turn to such a firm for assistance.

These companies will ask you to stop making payments and instead send them the money, typically for less than what you were paying your creditors so all of a sudden you feel somewhat relieved. An agreement will be sent to you asking you to refer collection agencies to them, that you grant them special power of attorney to negotiate directly with your creditors and that you agree to escrow part of the funds that you’re sending them for paying off the accounts when a settlement agreement is reached.

One or two statements from your creditors may pass before you will receive a collection notice. At that time you will receive either a letter, a call, or both. If you provide the caller with your debt settlement company’s contact information, or forward letters to that company, you can avoid any further contact with them.

At the same time, if the debt is not too high and you have any savings or equity in your home, you might want to listen to what the debt collector has to say. He would explain that no one at the credit company could do anything about your account until such time you defaulted on your payments and got referred to their company. At that point, they may be able to help.

Many companies can offer to settle for half of your total debt, inclusive of late fees and additional interest, if you are really on a hardship of some kind. The settlement amount is likely to be lower than the debt settlement company expects to escrow as payment and there was no hassle of involving another party. It is expected to be a limited time offer however so you better have some financial resources ready to take advantage of this conditional reprieve. Some companies are even willing to decrease the amount further if you are still unable to meet the initial offer, provided you settle it within a limited amount of time.

In some instances, you may be able to settle your debt for this amount. Other times, you may wish to go with a debt settlement company, which will not save your credit but may help calm your nerves. A third option, if the amount is too high and your conditions dire, is to consider bankruptcy.

Remember however that if a creditor writes off a substantial amount of your debt that you are required by law to report it as income and pay corresponding taxes the following year. This is applied regardless of whether you did the work yourself or hired the services of another company.

About the author: Michael Chatman is a freelance writer and publishes his expertise in ppi claims and claim back payment protection.

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