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Debt Settlement Companies – Often Not a Good Option!

arkovich_law-narrowSomething going around one of the listserves I monitor daily is how debt settlement or debt consolidation companies are a sham.

The facts for this one:  (by the way, the client provided a copy of the written agreement to the attorney so the fees and proposed settlement amounts were verified)

The Debtor placed $54,000 with the debt settlement company.  The estimated settlement amount was $27,500 and the debt settlement company charged a fee of $12,500.  The settlement would cost them $40,000 on a $54,000 debt.  Plus this would be a taxable forgiveness, so the Debtor would receive a 1099-C for $27,500.  Why would anyone agree to this nonsense??

What if the same Debtor were to file bankruptcy?

A Chapter 7 costs roughly $2,500 (depending upon the attorney and jurisdiction).  The likely repayment would be zero.  Discharged debt is not taxed.  This is so clearly the better option!

Debt settlement/consolidation companies like to give the impression that by filing a bankruptcy, you will be blowing up your credit.  However, getting a fresh start through bankruptcy is often a far cheaper and far quicker resolution of the problem.  People get home loans after bankruptcy.  People get credit cards.  People get car loans.  All after bankruptcy.  Yes, the bankruptcy stays on your credit report for 7-10 years, but your life will go on – and credit is available.

When would a debt settlement company make sense?  Maybe for a small debt of less than $10,000 if the fees are reasonable that is.  Bankruptcy may not make sense for a small debt.  But then again, you can usually settle those on your own and save the fee.

Would you like help evaluating your options?  We have a free a consultation with a bankruptcy attorney (who may or may not suggest bankruptcy based upon your circumstances) if you are in the Tampa Bay area or its surrounding counties.


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