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Irvine Bankruptcy Lawyer / Debt Settlement

If you have been looking for solutions to your debt problems, you might have come across advertisements for companies offering something called debt settlement. While debt settlement might be effective for some, exercise caution with companies that guarantee extraordinary outcomes, as things that seem too good to be true often are. At The Law Office of Charles A. May, we help people find effective debt relief through Chapter 7 bankruptcy (or Chapter 13 when it is more appropriate). We understand debt settlement and can counsel you on whether it might be right for you or if bankruptcy is better.

If you are struggling with debt in Orange County, Los Angeles or Southern California, we would be happy to sit down with you, get to know you and your situation, and let you know how we can help. Call our office for a free consultation with a skilled and compassionate lawyer.

What You Should Know About Debt Settlement

Debt settlement is a process where you hire a company and pay them to negotiate with your creditor and settle your debt for a lesser amount than you owe. Hopefully, the savings they get by reducing your debt more than makes up for the money they charge you to do the job. Here are some things to look out for:

The first thing the debt settlement company will tell you to do is stop making any payments to your credit card company and/or other creditor. This will cause you to further incur late fees, penalties, and additional interest on your debt. It might also lead to phone calls and letters from the creditor or bill collector demanding payment. Importantly, the fact that you have engaged a debt settlement company may not be recognized or considered relevant by them. As far as they are concerned, you are still responsible for paying your debt. Depending on the debt, stopping payments could put you in default and lead to legal action to collect the debt.

Stopping payments to your creditor will hurt your credit score; the credit bureaus also do not care that you’ve hired a debt settlement company.

The debt settlement company will require you to make monthly payments to them instead of your creditor, and they use the money that accumulates in that account to pay your debt for whatever they settle it for. If you are struggling to pay your creditors, you might not find much relief from paying the debt settlement company instead. If you cannot keep up with your payments to the debt settlement company, your settlement will not get paid, and you will be worse off than before.

Debt settlement companies only work with one creditor at a time. If you are dealing with multiple debts like credit cards, doctor bills, personal loans, utility companies, etc., they will have to negotiate a debt settlement separately with each creditor. Additionally, there is no guarantee that any one of your creditors will work with the debt settlement company and accept a deal. Bankruptcy, on the other hand, brings all of your creditors together into one proceeding, whether they like it or not, and they are bound to comply with the terms of an approved plan or bankruptcy court discharge.

If you get your debt settled for less than the amount owed, that is a good thing, but know that the IRS views the amount that is forgiven as taxable income. Yes, you pay taxes on the money you do not have to pay anymore. On the other hand, debts discharged in bankruptcy do not result in any tax liability to you.

Last but not least, a lot of so-called debt settlement companies are just scams. If they promise to settle all of your debt for pennies on the dollar, you are right to be skeptical. If they demand payment upfront before they have done any work for you, or if they tell you to shut off contact with your creditors and do not explain what will happen if you do so, you might not be dealing with a reputable business working in your best interest.

Find Affordable and Effective Debt Relief With The Law Office of Charles A. May

If you are seriously considering hiring a debt settlement company, it pays to do your homework. Before hiring a company, be sure you understand what they charge, what they promise to accomplish, how long the process will take, what your obligations to the debt settlement company and your creditors will be, and the consequences if you stop paying your creditors and pay the debt settlement company instead. While you are paying the debt settlement into an account they set up, who is entitled to the interest? The truth is that you are, but see if the debt settlement company will tell you that.

If you want to have a serious conversation about your options, including debt settlement or bankruptcy, we would be happy to talk to you and give you our honest opinion about what would work best in your particular situation. We work with people throughout Orange County, Los Angeles, and all of Southern California, and we truly want you to succeed. Call The Law Office of Charles A. May for a free consultation with a knowledgeable and dedicated bankruptcy attorney. Call Charlie May today.

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