Debt Settlement and Bad Credit
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Debt Settlement and Bad Credit
Settling debt can provide you with a means of escape from a desperate situation. But despite the benefits of settling a debt and the appeal it has for those who are struggling financially, it isn’t always the right choice.
For some, financial problems get much worse after settling a debt.
How Does Debt Settlement Work?
A debt settlement allows you to pay a portion of what you owe to resolve the debt.
For instance, if you owe $5000 on a credit card, you might be given the option by the debt collector to settle the debt for $3000. It might also be possible to negotiate a debt settlement with the collector and offer to pay less than what you owe.
Debt settlement is often advertised as an alternative to bankruptcy that can stop the endless loop of late fees, high interest, creditor harassment, and everything else that goes along with falling behind on your bills.
Debt Settlement and Your Credit
If you have already defaulted on a debt, then settling your debt should improve the situation by getting the account out of collection and reporting a zero balance.
Most creditors won’t consider a settlement of your debt until you default. When you default your credit will take a hit. At Weston Legal we typically only represent clients who have already defaulted on their debts so their credit has already taken a huge hit. Settling the debt typically only improves their credit from this point.
What You Need to Know about Debt Settlement
The key is knowing the right way to settle a debt.
It’s possible to offer a settlement to a debt collector, but it’s unlikely doing so on your own will be in your best interest – and that’s even if the debt collector accepts the settlement.
You also have the option of working with a non attorney debt settlement company. These companies encourage you to stop making payments on your debt or debts, collect the money you would have paid toward those debts, and then make an offer to the debt collector or creditor to settle the debt. Usually these are scams.
Many of our clients are sued by their creditors on accounts their debt settlement company is supposed to be working on. This is why you need a debt settlement law firm who will represent you in court when the creditor files a lawsuit.
The best thing you can do if you’re considering debt settlement is to work with a debt settlement lawyer who understands the process and can determine if it’s really the best option for you. A lawyer can assess your situation and determine the best way to proceed. Sometimes it’s negotiating a settlement. Other times it’s bankruptcy or negotiating a payment plan to pay the debt in full.
The important thing to remember is working with a lawyer means someone is on your side helping you make your situation better.
The IRS considers the amount you didn’t pay on a debt income.
You’ll may be sent a Form 1099-C from the creditor and it will need to be filled out and included with your tax return at the end of the year. You should consult with a CPA if you receive one of these 1099-C’s.
Contact us at Weston Legal 1.800.220.4318 for more information.