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Find out WHAT IS REALLY BEHIND Debt Settlement!

Published by admin on December 18, 2009

Find out WHAT IS REALLY BEHIND Debt Settlement!

More and more people are becoming interested in Debt Settlement as an alternative to bankruptcy. Ever since the new bankruptcy law came into force on 17 October 2005, which a rude awakening to reality for many consumers who are looking for a fresh start in bankruptcy court, people are starting to turn their heads towards other types of ways to resolve their debt problems like: debt consolidation, debt settlement, debt management or credit counseling.

In the past it used to be that 7/10 applications from persons for personal bankruptcy were granted Chapter 7 status, where the unsecured debt was completely wiped out. Unfortunately things have changed under the new rules. If your income exceeds the median state, or you can pay back at least 100 dollars a month toward your debt, you’ll be rejected in Chapter 7 bankruptcy. Instead, you’ll be transferred to chapter 13, which you will have to pay back part of the unsecured debt in around 3-5 years.

And things are going to get worse. When the court calculates the allowable cost of living, that calculation is going to be used by the approved IRS schedules, not the actual documented expenses. So while you don’t think you can pay $100 a month or more, the judge will probably disagree. Instead of a new beginning, many people face the grim reality and will have to accept the harsh 5-year plan, which is a court-approved budget, which forces you to accept much lower standard of living. This is the moment when debt settlement is beginning to look quite attractive to many of you.

Yes, I know that debt settlement has been critical. I’ve criticized the part of the industry. But what critics don’t seem to understand that this approach is for people who would otherwise go bankrupt? Let’s look at three complaints from debt settlement and what the critics are missing the mark.

-\ “Debt Settlement has a negative impact on your credit score.”

Wow. Big deal! This complains will not be valid after two years. Do you prefer your + credit rating or do you prefer to become debt free entirely? Pick one you want, just because you can’t have both at the same time. In fact you must know that all the debt reduction programs have a negative impact on credit scores. That’s why the only people who really can’t follow their bills should go to one of these programs. But it’s no point in fear of the credit score when the fact that you’re the debt has been shattered. That is like you start having some concerns about how the yard looks after the house has burned down.

-\ “You may have to pay taxes to cancel part of the debt.”

I’ve always been amazed at how frequently this lame criticism is repeated in many debt settlement articles. Yes, it’s possible that you may have to pay taxes on forgiven debt remaining, but the odds are against it. That’s because the IRS, according to the insolvency of the taxpayer leaves the canceled debt. So if you have a positive net worth, you probably won’t have to pay taxes on your colonies. You’d pay the taxes because you saved a bunch of money off the debt you had! And is this the problem?

-\ “Collection activity will continue and you can get a raise.” \

Yes, if you do not fall behind your bills, your creditors will continue to try to collect the debt, and one or more of those creditors might sue you in civil court. But again, this is the type of criticism that totally misses the mark. Collection is already working on the task of getting some money out of your current debt problems. At least debt settlement allows the consumer to use the collection to eliminate debt through negotiated compromises. Although the trial cannot be a cause for panic, since these problems can often be resolved without a civil litigation.

The only reason to allow a lawsuit to proceed to the point of wage garnishment, property lien, or bank levy is the lack of financial resources with which to solve. And if that’s the case, the debtor must speak with a bankruptcy attorney anyway.

Instead, let’s look at some of the positive aspects of debt settlement:

1. You can save $ 1,000s and it’s a lot easier than any other method of debt elimination (except for Chapter 7 bankruptcy, which is much more difficult to achieve, now that the new law is in force).

2. You can get out of debt in 2-3 years and much faster if there is some available home equity to work. This is much better than 5 years in the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a program of credit counseling.

3. You can maintain control over the process, a thing that is not possible with any other approach.

4. You can maintain a personal privacy. The moment you file bankruptcy, the case file is going to become a public matter, easily located via Internet search by future employers, landlords or creditors.

5. It preserves your dignity, by working with your financial problems. Bankruptcy still feels like failure to a lot of people. Net debt is honest and ethical alternative to that extreme solution.

6. You can adjust the monthly financing program by setting up or down depending on the condition of the real world in your financial life. If your income varies from month to month, or you get hit with an unexpected expense, this it’s not going to ruin the whole debt consolidation program.

Once you’ve received the right determination that debt settlement makes sense for your situation, you’ll need to decide whether to go alone or seek professional assistance. For people who aren’t being intimidating by dealing with creditors and fighting for their financial situation, there’s no doubt that the do-it-yourself “is the way to go. For those that can’t handle the minimum pressure or simply want to concentrate and focus their time and energy elsewhere; hiring a professional debt settlement agency for the job may be the right choice.

If you decide to take the do-it-yourself, follow these suggestions:

* Use a privacy manager on your telephone service for the calls to your creditors, so that you only speak to creditors when you’re ready.

* Make sure you have a solid game plan for the settlement to resolve it, and set the money aside in a separate bank account.

* Do not send funds until you have the compensation agreement in writing. No exceptions!

* After paying the settlement, follow-up to achieve a zero balance letter from the creditor, so you don’t have problems collecting false claims later.

* Know your rights as a consumer reading the articles for free resources on debt, credit and collections at the website of the Federal Trade Commission: www.ftc.gov

* Don’t be intimidated or pressured to accept a settlement agreement that you can’t handle.

Remember, thousands of people resolve their debts every year, without the need for lawyers or bankruptcy or debt consolidation programs. You can do it in case you’re disciplined, determined and ready to ignore some of the crazy things that debt collectors say. When you’re finally debt-free, you’ll feel much better to know that you have managed to work out all your problems on your own. Good luck on your path to debt freedom!

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