Little Known Facts About Debt Settlement
I’ve counseled numerous clients seeking advice after debt settlement companies haven’t delivered on their promises.
One client worked with a debt settlement company that collected funds, but made no payments to the creditors and then refused to give the client a refund. Another received a summons from a creditor seeking legal judgments/wage garnishments. After a debt settlement company advised another client and her husband that creditor agreements were in place, they complained of receiving a summons seeking wage garnishments. A different client completed a debt settlement program and then found out he had a huge tax burden for the forgiven debt.
Another misconception is that when debt settlement companies make agreements with the creditors, those creditors will not pursue legal action. Debt settlement programs aren’t successful until creditors accept the settlement company’s offers which can take months, if not years. While they negotiate with creditors, there is the possibility that creditors will seek legal action against you and debt settlement firms cannot stop creditors from doing so.
Debt settlement is very likely to hurt your credit. Lack of payments can cause your accounts to be placed in collections and charged off. If creditors report that your account was settled rather than paid in full, your credit could suffer as a resultsuffer. Negative marks on your credit report last for seven years.
Lastly, many settlement agencies do not advise their clients of the possible tax implications associated with using a settlement program. It’s important to understand that you must claim any difference in what was owed and the settled amount as income on your income tax returns, which could increase the amount of taxes you owe.
Thankfully, new federal rules aimed at the debt settlement industry go into effect on Monday, October 27, 2010. Under the stricter rules, debt settlement companies doing business by phone can’t make false claims. They must disclose the possible issues related to settlements, like the negative impact to credit scores, tax implications, and the possibility of legal action. See the Federal Trade Commission’s new rules for more information.
Read What is Debt Settlement? to learn more about this topic.
Leave feedback or ask a question.
No responses to “Little Known Facts About Debt Settlement”