What is a debt settlement? 14 Answers as of April 20, 2015

I have too much credit card debt and have less income because my job has been hit by the economy. Is debt settlement a good service? Is it better than bankruptcy?

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GARCIA & GONZALES, P.C. | Richard N. Gonzales
It may be a viable option, depending on who you hire. Do a through background check on the company. I have done these for clients, and depending on how many creditors you have, I have been able to settle accounts for around 40% of what is owed, IF you have access to cash. These creditors want a lump sum payment, NOT payments on a reduced amount. On the whole, it normally makes more sense to file Chapter 7 (assuming you qualify), and start rebuilding your credit. Hope this helps.
Answer Applies to: Colorado
Replied: 4/16/2015
Eranthe Law Firm
Eranthe Law Firm | Cate Eranthe
Before you go see a debt settlement company check them out with the district attorney's office. Many of them are no good. We have one in the Bay Area that is reputable. It's called Consumer Credit Counselors of San Francisco or CCCSF. Not any other city just CCCSF. I think they also work over the telephone. I've seen many cases where people paid thousands towards what they thought were settlements only to find it all fall apart or that none of the money paid went towards their debts. They then filed bankruptcy anyway and were out added funds they couldn't afford.
Answer Applies to: California
Replied: 4/15/2015
Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
Debt settlement is horrible. It costs much more than bankruptcy and does little to help your credit score. I have seen many clients who paid thousands of dollars in these schemes and they are no better off.
Answer Applies to: California
Replied: 4/20/2015
The Law Office of Darren Aronow, PC
The Law Office of Darren Aronow, PC | Darren Aronow
Depends who you ask. I prefer bankruptcy as in debt settlement you will pay a good portion of your debt which you will not in bankruptcy; you will be taxed on the debt that was forgiven in debt settlement, in bankruptcy you will not; and your credit will start getting better almost immediately after done with bankruptcy in 90 days, and in debt settlement it will get better when your done settling with all of your creditors.
Answer Applies to: New York
Replied: 4/14/2015
I have not heard very good things about debt settlement. A Ch 13 bankruptcy is like a settlement which is enforced by the United State Bankruptcy Court. You would make a 3 to 5 year plan which would pay a monthly amount into the Ch 13 Trustee's office from which the creditors would be paid.
Answer Applies to: Minnesota
Replied: 4/14/2015
    A Fresh Start
    A Fresh Start | Dorothy G Bunce
    Debt settlement has a very bad reputation because the people who enter into debt settlement often have unrealistic goals. Those who sell you debt settlement will not give you a reality check because they lack the financial incentive to be honest with you. Debt settlement is better than bankruptcy when you don't qualify for bankruptcy or when bankruptcy consequence is unacceptable (too little debt, too much left in budget, too much property not protected by available exemptions). As a practical matter, settle debts only if you have savings to pull to make a lump sum cash offer.
    Answer Applies to: Nevada
    Replied: 4/14/2015
    Richard B. Jacobson & Associates, LLC | Richard B. Jacobson
    There are businesses out there which call themselves debt settlement agencies or some similar names. Over the years about a dozen of my clients have tried them. None of them got what they were looking for. The charges were too high, and too little money went to creditors. There might be some exceptions, of course, but I don't know about them. Bankruptcy is not terribly expensive and is quick and sure. Good Luck.
    Answer Applies to: Wisconsin
    Replied: 4/14/2015
    Michael J. Duggar, P.A.
    Michael J. Duggar, P.A. | Michael J. Duggar
    I have found both to be beneficial depending on your circumstances. Debt settlement is a viable option depending on how much money you are able to pay to the creditors. Most debt settlements are in the 50-55% range of what you owe. In most, if not all bankruptcy cases, you will pay dramatically less to the creditors thru a bankruptcy.
    Answer Applies to: Florida
    Replied: 4/14/2015
    Patrick W. Currin, Attorney at Law | Patrick Currin
    If you can discharge all debt, settlement is not as good. Also keep in mind the forgiven debt then becomes income. Consult an attorney.
    Answer Applies to: California
    Replied: 4/14/2015
    Ronald K. Nims LLC | Ronald K. Nims
    Bankruptcy attorneys are all going to negative on debt settlement companies because we see a lot of people who wasted a lot of money and years on debt settlement schemes. There are two main types of debt settlement companies, out and out scams who'll take your money and steal it and companies funded by the credit card companies. The legit ones are working for the credit card companies and as a result you'll pay for years and still have about the same credit card balances. Because they are working for the credit card companies, they aren't any help with other debts. If all your debt is credit cards and you have a low amount compared to your income, a legit debt settlement company will be more expensive than bankruptcy but you'll clear the credit card debt eventually. In any other circumstance, bankruptcy will save you thousands and give you a fresh start sooner.
    Answer Applies to: Ohio
    Replied: 4/14/2015
    Tokarska Law Center
    Tokarska Law Center | Kathryn U. Tokarska
    The answer really depends on more facts about your situation. Sometimes debt settlement works and is a good option. Sometimes bankruptcy is better. Just knowing that you have "too much" credit card debt and "less" income doesn't paint the picture enough to give advice on what would be the best approach for you. Generally speaking, with bankruptcy there is more certainty about the outcome, debt settlement comes with no guarantees because the success hinges on your particular creditors' willingness to settle for a particular sum and of course you having that sum available to pay them whether it be savings, investments or taking out other loans (which should be carefully considered). Total amount owed on each account, the amount you can bring to the negotiations table, are factors. There is also credit consolidation, which is yet a different animal. And there are two types of consumer bankruptcies: liquidation (commonly known as chapter 7) and restructure and repay (known as chapter 13), Chapter 13 is similar to settlement except rather than negotiating a particular amount and having to come up with a sum upfront you make payments based on certain calculations, and there are no tax implications at the end. There is a lot of articles about these different options out there and you can study up or you can schedule a consult with an attorney and have them present them to you. If someone says you should settle or you should file bankruptcy without understanding your financial picture: your current monthly income, household size, living expenses, assets, the types and amounts of debts and how old these debts are I'd run because whichever option is best depends on such facts.
    Answer Applies to: California
    Replied: 4/14/2015
    Goldsmith & Guymon
    Goldsmith & Guymon | Marjorie Guymon
    In order to do a debt settlement you will need to negotiate with each individual creditor. The most effective way to do that is through a legitimate credit counseling company. In my experience, the credit card companies are willing to reduce the amount owed but want lump sums normally 40-60% of the balance owed. Only through a credit counseling agency will you get them to agree to monthly payments.
    Answer Applies to: Nevada
    Replied: 4/14/2015
    Musilli Brennan Associates PLLC
    Musilli Brennan Associates PLLC | John F Brennan
    Voluntary settlement is generally preferable to bankruptcy, but the devil is in the details. See an attorney, learn and discuss your options.
    Answer Applies to: Michigan
    Replied: 4/14/2015
    Pearson Butler
    Pearson Butler | Jeffrey R. Butler
    Every case is different. Debt settlement provides an opportunity to pay back creditors at a discounted amount. To do so, most creditors will want a lump sum settlement payment. Most people feel good about negotiating at 25% to 50% of what is owed. The challenge is that most creditors would like that money paid upfront. So if a person owes $5,000 to a credit card company, the company will want $2,500 paid within a week or so. Also, when a creditor forgives a debt, it usually creates tax liability and the creditor will send a 1099 for the amount forgiven. Also, sometimes a person may have several creditors and can successfully negotiate a debt settlement with the majority of them but not all of them. In contrast, a person can pay a bankruptcy attorney to file a bankruptcy and can avoid the head ache surrounding attempting to settle with a bunch of creditors.
    Answer Applies to: Utah
    Replied: 4/13/2015
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