Debt settlement, also known as debt arbitration, a work out or debt negotiation, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full. Debt settlement may be an alternative to bankruptcy if you have some money, but just not enough to entirely pay all your creditors. Since the creditors recognize the fact that in many instances we can file a bankruptcy and eliminate their debt altogether, they may pay more attention with the threat of bankruptcy as an option.

It’s variable, but sometimes the best candidates for debt negotiation are those on a fixed income, someone who is self-employed, or someone who is an independent contractor. Normally, these wages cannot be garnished, making the prospect of a lawsuit substantially less and/or the collection of a judgment virtually impossible. Debt settlement may also be appropriate for someone who cannot qualify for bankruptcy.

Consumers can arrange their own settlements by using advice found on web sites, hire a lawyer to act for them, or use debt settlement companies. Some settlement companies may charge a large fee up front (often called “good faith” money); or take a monthly fee from customer bank accounts for their service, possibly reducing the incentive to settle with creditors quickly. Before deciding to hire a debt settlement company, be sure to check out the company with the Better Business Bureau and the Attorney General’s Office of your State. We strongly caution the use of debt settlement companies because in our experience our clients often never have their debts settled.

Essentially, you, your attorney, or a debt settlement company negotiates upon the borrowers’ behalf with creditors to reduce the overall debts in exchange for an agreement upon regular payments or a lump sum settlement.

For the debtor, debt settlement can sometimes make sense where the debtor does not qualify for a Chapter 7 bankruptcy and under Chapter 13 bankruptcy , the debtor would be required to pay back most of the unsecured debts anyway. The debtor can sometimes reduce his or her debt balances by more than 50%. Whereas, for the creditor, they regain trust that the borrower intends to pay back what he can of the loans and not file bankruptcy (in which case, the creditor risks losing all monies owed).

It depends on the number of cards you have, and the amount of your debt. We will quote you either a flat fee or hourly rate as is appropriate to your circumstances for negotiating your debt. Please note that the fee does not include any cost of litigation should the creditor sue you.

Unlike bankruptcy, there is no guarantee that the creditors will agree to a settlement. There is no “formula” to debt settlement as there is to bankruptcy. It can be a long, often tedious process to negotiate with every credit card company. Each creditor has their own debt settlement method, and many tend to have an aggressive resistance against negotiations. There is also no bankruptcy protection that stays any collection efforts by the creditor. There’s always the possibility of lawsuit whenever debts lay unpaid.

In Chapter 7 bankruptcy, you owe the credit cards nothing after the bankruptcy. The debts are forever discharged. In debt settlement, if you fail to pay the credit card company the negotiated amount, they can come after you for the debts, plus interest, and any applicable fees.

The following are issues you should consider when contemplating debt settlement:

• Your credit score will suffer.
• Your accounts will be paid off but will not show up on your credit report as “paid in full” UNLESS the debt is paid off through a 3rd party debt buyer.
• We CANNOT guarantee we will be successful in negotiating your debts down.

Bottom line is that debt settlement is a bankruptcy alternative for those who need to get out of debt because it is past the point where they can reasonably get out of their financial situation without a more drastic solution.

Yes. A creditor can sue you for the debts that you owe unless you work out a settlement, or file for bankruptcy protection. As long as your debts are in default, the creditor or its assignee can still file a lawsuit against a debtor. This is one of the advantages of using an attorney for debt settlement. The attorney can handle any lawsuits filed in an effort to collect the debt.

Another difference between filing for bankruptcy and debt settlement is tax consequence. In bankruptcy, there is no tax liability to the debtor for the discharge. In debt settlement the Debtor may need to report the canceled portion of the debt as taxable income. (See IRS Publication 908) The Internal Revenue Service considers $600 or more of forgiven debt as taxable income. The forgiving creditor must provide the taxpayer with a 1099-C tax form. You may need to consult with an accountant to determine any tax liability as a result of debt settlement.