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Debt Settlement Companies: Debt Settlement or Bankruptcy?

I often consult with clients who have attempted debt settlement prior to our meeting.  I’m sure debt settlement has helped many people resolve their debt issues, I only see cases where debt settlement was unsuccessful.  Most of the time these clients are in a worse position then they were prior to attempting debt settlement and are left with little choice but to file bankruptcy.

Debt settlement companies are private, for profit companies that offer to negotiate with your creditors on your behalf in an attempt to reduce the amount you owe.  Some companies charge a fee per settlement while others charge regardless of the result.  You should be sure you have done your research in finding a debt settlement lawyer.

One issue with debt settlement companies is that they encourage consumers to default on their debt so that they can negotiate a lower settlement amount.  With this advice, they often do not disclose that failure to pay your creditors could result in a lawsuit, wage garnishment, extra fees and penalties, and more.  A second common issue with debt settlement is that sometimes the creditor refuses to settle.  I often see debt settlement companies resolve the smaller liabilities, while the largest creditor is unwilling to participate.  In this situation the consumer has wasted time and money settling the less troubling debt, while being forced to file bankruptcy due to the non-participating creditor.

With debt settlement there may also be unanticipated costs.  Any debt forgiveness is treated as taxable income.  For example, if you settle $30,000 of credit card debt for $15,000, you will be taxed on $15,000 of income.  This can leave you with a substantial bill from the IRS.  In bankruptcy discharged debt is not treated as taxable income.

Finally, I have seen debt settlement companies that are complete scams.  Therefore, do your research prior to selecting your debt settlement company.

At Ariano & Reppucci, our trusted Phoenix bankruptcy lawyers will give you an honest assessment of whether bankruptcy or an alternative to bankruptcy such as debt settlement is in your best interests.  Too often bankruptcy attorneys push clients into filing either Chapter 7 or Chapter 13 bankruptcy when it does not make sense to do so.  For a free consultation with an experienced bankruptcy lawyer in Phoenix, Tucson, Casa Grande, or Prescott, call us 24/7 at 602-515-0841, 520-461-1077, or 855-298-4727.

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