The ads on the radio always sound alluring. Simply respond by calling a toll free number and the debt settlement company will solve all of your financial problems. But is the promised relief as good as described?
Debt Settlement Process
The business model, or pitch, works something like this. You will be instructed to stop paying on your credit cards and to instead make payments to the debt settlement company. Often, the company will want to deduct the money straight from your bank account. You are told that the credit card companies will eventually give up and write the debt off. They will then sell your debt to some third party debt buyer for pennies on the dollar. By that time, the debt settlement company will have amassed enough of your money to settle the claims of the credit card companies. They will pay everything off and your credit will be perfect. The radio ad says that you will be able to buy a new house and or car in very little time.
There are a number of problems with this business model. First and foremost is that you are sending your hard earned money to a company you know little about. In many cases, you are even providing your bank account information. The debt settlement industry is largely unregulated. A simple internet search will reveal that there are volumes of people who have sent money to these companies and not obtained any relief at all. By the time they realize that the plan is not working as described, the company that they sent their money to is nowhere to be found. The money is not traceable.
In addition to the above, even if the plan works as described, the individuals credit report will still show numerous late payments and/or write offs. These are not going to help the individuals credit score. Potentially even more costly is the fact that new tax liability may be created. When a creditor forgives debt, the amount forgiven can be treated as income by the Internal Revenue Service. Taxes may become due on that income.
Speak With a Debt Professional
If you are a consumer struggling with debt, your best option may be to meet face to face with a qualified and experienced consumer bankruptcy attorney. The attorney will have passed a bar exam, be licensed by a state bar association and his work will be scrutinized by a judge. A good bankruptcy attorney will help you to explore all of your options – both bankruptcy and non-bankruptcy.
The fact is that you owe it to yourself to fully explore all of your options. Financial problems can be stressful for you and your family. Don’t necessarily take what sounds like the easiest solution. In many cases, decisions like this will have contributed to the financial problems that you now face. Please take the time to seek out and meet in person with an experienced attorney. Our offices offer a free confidential consultation during which you will meet face to face with a knowledgeable attorney. We will review your situation and help you come up with the best course of action to address the problems that you face.
Brad Botes is a principal of each of the Bond & Botes Law Offices throughout Alabama, Mississippi, and Tennessee. He holds a Bachelor of Science from the University of North Alabama, and a Juris Doctorate from Cumberland School of Law at Samford University. He and his team of bankruptcy lawyers have spent over 30 years guiding people through financial challenges. Read his full bio here.