If you are currently in or thinking about using a debt settlement program, contact a bankruptcy attorney’s office to figure out your other options during a free, initial consultation.
The ads online and on television scream, whatever you do, “Don’t file a bankruptcy case!” This marketing pitch, being sold mainly by non-attorneys who are not permitted to file bankruptcy cases, is designed to get you to sign up for one of two types of debt settlement programs.
The first debt settlement program companies advertise take a monthly payment from you and save it in their trust account (except for their monthly fee). They notify your creditors that they are working to get them paid. Then, once they have 50% or more of the balance owed a credit card company they negotiate to pay off the card in full for that percentage. During the process, you can be sued, harassed, and threatened by your creditors. Any forgiven debt will be taxed by the IRS as income, and your credit score will be severely damaged.
Compare this with a Chapter 7 bankruptcy case. You’ll pay your attorney much less money – and your debts will be discharged completely in around 3 months. During those 3 months, you are completely protected by the bankruptcy court through the “automatic stay.” While a bankruptcy hurts your credit score just like settlement does, you will not be taxed by the IRS on any discharged debt.
The second way to ‘settle’ debt is to send a portion of your monthly income to one of these companies. They try to negotiate lower interest rates and lower principal balances on your debts. Often, tens of thousands of dollars are sent in, your credit is still damaged, and you have no recourse if you miss payments. Again, the IRS will tax you on any forgiven debt.
Compare this to a Chapter 13 bankruptcy case. In Chapter 13, the same basic setup is used. You send a portion of your income into the trustee who distributes that money based on your monthly expenses. The huge difference is that (1) your creditors do not need to give their permission to file a Chapter 13 (we just need to follow the bankruptcy code), (2) a Judge, not your creditors, determines if and when you are discharged of your debts, and (3) you are not taxed on the discharged debts.
Your creditors know about Chapter 13, and are only going to agree to ‘settle’ your debts if it’s a better deal for THEM.
The bankruptcy code was written to protect people who are in financial distress. If you are in financial distress, and live in Western North Carolina, contact me for a free initial consultation where we can figure out what type of relief is available for you.
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