Avoid Bankruptcy: Settle Your Debts

Companies specializing in debt settlement, either financial service or law firms, would want to make an impression that only they have the capability to help you reduce your debt and ease your way out of the financial hardship you are experiencing.

But that’s not completely true because if you refer to the fine print of their agreement it says that even though they will manage your account and talk directly to the creditors, they are nonetheless powerless in the event that the creditors lodge a formal complaint 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 in a situation where you are hard-pressed to meet your payment commitments and unable to talk to a customer service representative from your creditors, then it is easy to understand why so many people turn to these firms for assistance.

Debt settlement companies may tell you to stop making payments and begin sending them money – typically less than you were paying so you immediately feel some relief. They will then send you an agreement stipulating that you are granting them special power of attorney in communicating with your creditors, asking you to refer collection efforts to them, and that you agree to escrow a portion of the funds that you’ve been sending them to pay off your accounts once a settlement agreement is finalized.

You may receive one or two statements from your creditors before you can receive any type of collection notice. Collection notice may be either by letter, phone, or both. If you provide the creditors with the contact information of the debt settlement company, or forwarded them a copy of the collection letter, you may be able to avoid further contact from your creditors for the time being.

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 tell you that the credit company is not obligated to do anything about your account until it became delinquent and got referred to their company. At that point, they may be able to help.

If you have a hardship of some kind, many companies will offer to settle for half of your total debt, which by this time includes late fees and additional interest. 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. Others will decide to go for the help of a debt settlement company which even though it doesn’t save your credit standing but may save your nerves from further breakdown. Lastly, you may consider filing for bankruptcy if the debt is too high and you are mired in a terrible financial position.

Don’t forget that if a creditor waives a significant amount from your debt that you are mandated by law to report it as income and pay the applicable taxes the next year. This is applicable regardless of whether you did the work yourself or hired another party to do it for you.

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

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