Bankruptcy vs. Debt Consolidation
There are two options out there that seem like a good alternative to bankruptcy: debt consolidation and debt settlement.
On the surface, debt consolidation sounds like a reasonable alternative to bankruptcy. The ads say that you can consolidate your debt and pay it off at a reduced rate. But this is just creating new debts to try and pay off your old debts.
Similarly, on the surface, debt settlement sounds like a reasonable alternative to bankruptcy. The idea is that you pay the debt settlement company the money that you would normally pay to your creditors. They then negotiate with your creditors to reduce your debts in exchange for lump sum cash payments. Then they pay the creditors with the money you have sent in. However, in practice it frequently does not work out this way. What if the debt settlement company keeps your money by charging you high fees and then never pays your creditors? This, unfortunately, is a scenario that regularly occurs. Some debt settlement companies prey on the vulnerabilities of people going through some of the most difficult times of their lives.
Not sure about Bankruptcy vs. Debt Settlement vs. Debt Consolidation?
Are you struggling under a serious debt burden and wondering about bankruptcy versus debt settlement or bankruptcy versus debt consolidation? Contact an experienced debt-relief attorney at the law office of John Hargrave and Associates, in Barrington, New Jersey, at (856) 547-6500.
Debt Settlement: Too Good to Be True?
Your credit rating will suffer with a debt settlement solution. This is because you will need to fall behind in your bill payments in order for the debt settlement company to negotiate a reduced debt resolution for you. They hold your money while interest accrues.
You Must Fall Behind in Your Bills
Your credit accounts may be two to four months behind in payments by the time a debt solution can potentially be negotiated. In the meantime, you will be hounded by creditors to pay your bills.
Your Credit Rating Takes a Hit
The fact that you have fallen behind, even though you have done it purposely in cooperation with the debt settlement company, has an impact on your credit report.
Finally, if the debt consolidation company is able to negotiate a reduced debt for you, your account will be updated as “Paid-Settled” or “Charged-Off Settled,” which takes away from a good credit report. This appears on your credit report for many years.
Creditors May Not Negotiate with Your Debt Consolidator
What if the debt settlement company is unable to negotiate a reduced debt-relief solution? Then you are in a worse position because now you have defaulted on your credit card payments, steep penalties and high interest have kicked in, and you owe far more. There is no legal guarantee that debt settlement will work in your case.
You Must Pay Taxes on Forgiven Debts
You may even have to pay taxes on forgiven debts. The IRS considers forgiven debts income. Even if your creditor does not send you a Form 1099-C, you are still expected to report this forgiven debt as income upon which you will be taxed.
There really is no easy payment solution, despite what the debt settlement companies tell you. The only way to legally protect yourself from creditors is by filing for bankruptcy protection, a right that is guaranteed by the U.S. Constitution.
Bankruptcy — Truly a Fresh Financial Start
If you do file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, all efforts to collect payment from you must be frozen until the proceedings are resolved. In a Chapter 7 bankruptcy, your unsecured debts, with some exceptions, will be wiped out altogether. Creditors cannot call and harass you. Your financial problems will essentially be wiped out and you will have a fresh financial start.
Attorney John Hargrave has been helping people find solutions to difficult financial problems since 1977. So-called debt-settlement companies have victimized some of our law firm’s clients.
Mr. Hargrave has been a bankruptcy trustee for many years, administering and supervising the resolution of more than 15,000 bankruptcy cases. As a trustee, he has seen many people, just like you, who were trying to do the right thing and pay their creditors some of what they owed. These people used debt settlement companies and ended up paying a lot of money towards fees for the debt settlement companies and saw none of that money go to their creditors. These people ultimately filed for bankruptcy protection. If they had filed for bankruptcy protection instead of paying a debt settlement company, they would have had all that money to start their new life with.
Questions about Debt Settlement, Debt Consolidation, or Bankruptcy?
At the law firm of John Hargrave and Associates, in Barrington, NJ, we offer free initial consultations. Contact us online, or call us at 856-547-6500 to schedule your appointment with an experienced debt-relief attorney.
Please note, however, that you are under no obligation to retain our services. You will, however, get good information that will help you make a decision about how to proceed in resolving your debt troubles.
We are a debt-relief agency. We help people file for bankruptcy relief under the bankruptcy code.