Debt Settlement is a known option that people use across the country. There are two types of debt settlement companies; attorney based and non- attorney based. In most instances it is best to use a settlement process that is backed or operated under the guidance and support of lawyers. With settlement, you will start a special-purpose savings or third-party escrow account. You will make monthly payments into that account that only you have control over. As these deposits are accumulated, your creditors will be contacted by the settlement companies negotiator. Each debt is negotiated or “settled” with your permission, the money you have been saving is used to pay off the agreed to debt balance.
During the time you are saving your funds, your credit report will be damaged, and your score will drop. This is common and to be expected. With settlement, there is always a chance of lawsuits and collection company calls and letters. With an attorney based settlement firm, any lawsuits will be handled on your behalf along with assistance for collection calls and/or letters. If you are not using an attorney based settlement company, you will be on your own for the lawsuits and often times the collection calls.
Attorney-based settlement companies do not collect any fees upfront. With this method, you stay in control of your money, you approve or deny the settlement(s) agreements. Last but not least, be aware that forgiven debt can equal taxable income. The amount of debt that is forgiven may be treated as income, which means you will have to pay tax on that amount (this can be true to the extent of insolvency). Make sure you work with a reputable firm and your tax professional to be prepared. Feel free to contact us with your questions; the more you know, the more informed your decision will be.