Debt Settlement, Bankruptcy or Debt Management

These terms get interchanged and confuse people about the pros and cons far too often. In 2005 Congress changed the bankruptcy laws and made it harder for people to declare chapter 13 and 7. When that happened debt settlement and management companies exploded to help Americans dig out from the credit card debt they accrued and couldn't shed thru a BK any longer. The way debt settlement works is simple. You owe 50k in different credit card debt. You stop making the payments to the different creditors and instead make payments to a debt settlement company. When they have enough money in the account they create for you they arrange settlement, usually at a hefty discount. Sounds simple but the truth is much more murkier than that. There are many companies, far too many in what was a largely unregulated new industry that simply took a desperate persons money and then claimed they couldn't help them. All the fees were up front of course. There are some tips to find a reputable debt settlement company that can and will actually help you. Find a company that offers credit counseling as well as debt settlement. They should tell you if the best idea is for debt settlement which means a drastic reduction in your credit score but less money you pay to the overall bill as opposed to debt management which is paying your debt in full but with a reduction of fees and an increased timeline.

DO NOT PAY any large up front fees to anyone that claims a magic bullet for debt settlement. We have all heard their endless ads on the radio claiming this magic secret that credit card companies don't want you to know. It's no secret to people in my line of work. Or many lines of work. A small fee may be acceptable but the company I know about basically works to save you money and then takes their fees based on the savings so it's in their interest to save you as much as possible. Many firms charge up to 15% of your outstanding debt which just makes you that much greater into debt. Don't pay these fees, you are wasting your money.
Ask many questions such as how long it will take to remove your debt and when they will make an offer to lower your debt payments. What happens in the meantime to the calls and letters?

Take a look at the Credit counseling agencies and what they recommend and what companies they recommend. There is also the Association of Debt Settlement Companies and also the National Conference of Commissioners on Uniform State Laws. <> Some are more inclined to debt settlement and some to credit counseling and debt management so you will get both sides of the debate. Some of these groups provide ratings and accreditation and that can be very valuable.

You can also check with the BBB but they consider the entire industry "inherently problematic".
Also something that may be "forgotten" to tell you. Any debt foregiven is considered taxable income. This also applies to short sales so keep that in mind also. They may forget to tell you but the IRS will not. I hope this helps sort some of this out for you. Please email me if you need any help or questions answered.