Is Debt Settlement The Right Debt Relief Option For You?

Is Debt Settlement The Right Debt Relief Option For You?

Keep in mind that settlement is a negotiation and voluntary on the part of the creditor. Before settling any accounts, negotiate all accounts with all creditors. This will help you avoid wasting critical assets settling one or two accounts only to discover that other creditor(s) will not negotiate forcing you to resort to other options anyway, such as filing for bankruptcy protection. The impact of bankruptcy on credit scores is the same regardless of how much debt or how many creditors are discharged.

Debt Settlement is easier when you have access to a lump sum of cash as money today is worth more than money tomorrow. Of course, often the problem is that people struggling in debt are not likely to have such assets.

Some individuals choose to either take loans or pull money out of their retirement funds. In addition to depleting assets with a very important purpose, too often failed settlement attemps mean debtors file for bankruptcy in even worse financial circumstances.

You should be aware that settled debt is considered income and expect to receive a 1099 form from the creditor(s) by end of the year in which the debt was settled. Always consult a CPA or a tax preparer to determine income tax implications. There are exception to taxing forgiven debt for certain types of debts as well as insolvent individuals. Learn exactly where you stand before settling accounts so that you are prepared for any tax consequences or you may be simply trading up another creditor, the IRS.

There are many private firms offering debt settlement and they make attractive claims. Buyer beware. Firstly, you may prefer to deal with someone local. If something goes wrong, you know where to go. Read the fine print before you commit. Contract terms often provide that you make monthly payments towards an escrow account. The purpose of this is for you to build up a lump sum of money, which will later be used to make offers of settlement to the creditors. However, pay attention to what is deducted from these payments. Often aside from any downpayment you are asked to make, another 40 percent of every payment may be taken by the company as fees. The account must grow into a significant amount in order to make settlement feasible. Meanwhile, the fees greatly stifle that growth and all the while outstanding accounts accumulate interest, collection “harassment” continues, and so does the negative impact on the credit report as the accounts grow more delinquent. After settlement, you may be taxed on the forgiven amount, which often ends up being nothing more than interest. For more information about ins and outs of Debt Settlement.

Disclaimer: The information contained here should not be construed to be legal advice nor creating a client attorney relationship.

Kathryn U. Tokarska, Esq. is admitted to practice in State of California. Graduate of California Western School of Law in San Diego, California, Ms. Tokarska concentrated her legal studies in area of Bankruptcy, Estate Planning, Taxation, Securities Regulations, and Real Estate Finance. She has over fourteen years of experience working for major financial investment institutions, offering financial planning services, investment products, wealth building and preservation strategies. Ms. Tokarska holds a Financial Paraplanner certificate, was a licensed stockbroker, and is currently enrolled in an LL.M. in Bankruptcy/Finance at Thomas Jefferson School of Law.

For assistance, contact Tokarska Law Center online, by Emailing Us, or by phone (619) 285-1992. We are a FEDERAL DEBT RELIEF AGENCY. We help people file for Bankruptcy Protection under the Federal and State Laws.

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