You’ve heard this refrain many times. “There is a secret credit card companies don’t want you to know”. There is no secret, believe me. Debt settlement outfits and “credit counseling” operations inundate us with their advertisements on radio and TV, and if you are searching for debt relief options on your computer, their ads appear all over the internet. Be wary.
Bankruptcy Attorney Eric Steiden writes as follows:
We have yet to refer a single client to one of these entities for some of the following reasons:
- The effect on your credit standing of using one of these companies to settle your debt is the same as filing any form of bankruptcy, and in some cases, it’s worse.
- If your credit has been affected by late payments, lawsuits, garnishment, repossession, foreclosure, etc., then debt settlement is a waste of time and effort and money. Bankruptcy is always better – 100% of the time.
- Debt settlement companies only work to settle certain debts. Most are ill-equipped to handle tax debt issues or student loans, and those companies that do engage workouts of these debts do only that and nothing else. Debt settlement outfits can’t resolve issues you might have with a car loan, and only very few have any ability to resolve mortgage issues. Bankruptcy helps you manage all debt.
- Debt settlement companies always fail to tell you that they ultimately cost you more than bankruptcy.
- Debt settlement companies always fail to inform you that any debt they settle will result in a tax penalty to you. If you settle debt, the amount forgiven will become taxable income to you and you will receive an IRS 1099 form for the forgiveness off the debt. Filing bankruptcy results in zero tax consequences.
- All of your creditors must agree to participate in a debt settlement plan. Otherwise, the plan will fail to resolve your issues. Also, if one or more of your creditors decides not to participate after you have begun making payments into a plan, there is no point continuing. This is the most typical outcome of debt settlement plans. We frequently see clients who have made payments to a settlement plan only to be sued by one or more of their creditors.
- Even the so-called “not-for-profit” debt settlement outfits are in the business to make a profit. The profit these entities make is what is they use to fund their operations. Their employees don’t work for free; they must be paid. Don’t fall for this ploy.
- Most individuals who need debt relief have major credit issues already, so why employ some effort that will result in little to no net benefit when you can file a bankruptcy case and secure a virtual guarantee as to how your debt issues will be resolved?
- Typical Chapter 13 bankruptcy case: Client owes $50,000 in credit-card debt, $18,000 on a car loan, $5000 in medical bills, $3000 in delinquent taxes, and they are six months behind on their mortgage payments. The car payment is $475/month. We file a Chapter 13 case and the clients ends up paying $575/month for 60 months to solve all of the foregoing. The only change the budget is the addition of $1000 above the car payment to eliminate and manage $87,000 in debt. No debt settlement company can produce this sort of result.
Always speak to an attorney first. Debt settlement companies should never be used – Period. We have yet to see a single circumstance where the outcome of a non-attorney managed debt settlement negotiation was close to, equal to, or better than choosing bankruptcy. Debt settlement companies do not have your best interests in mind, and they simply do not have the wide array of tools possessed by experienced bankruptcy counsel to deal with your particular set of circumstances. There are only very few circumstances when you should consider debt settlement over bankruptcy. if you consult an experienced and ethical bankruptcy lawyer, that attorney will identify the possibility that settlement might produce a better outcome than bankruptcy.
Always consult an experienced attorney first before you commit to any sort of debt settlement plan. Most initial attorney consultations are free, so you have nothing to lose.
Eric A. Steiden
Steiden Law Offices
411 Madison Avenue
Covington, KY 41011
(513) 777-7500 (OH)
(859) 777-7500 (KY)
(513) 684-9910 (Facsimile)