Jacksonville Bankruptcy vs Debt Settlement Lawyer
A quick online search for “debt relief” often leads to articles about “debt settlement.” Debt settlement companies advertise services that sound too good to be true. Unfortunately, they often are. In this article, we explain the mechanics of debt settlement, as well as its advantages and disadvantages. Speak with a knowledgeable Jacksonville debt setllement lawyer at the Albaugh Law Firm to learn more and evaluate your options for finding financial security.
What Is Debt Settlement?
Debt settlement involves the use of a private, for-profit debt settlement company to negotiate a lump-sum settlement of your debts on your behalf. Ideally, they are able to negotiate a reduced settlement, below the total amount you are owed. The debt settlement company takes over responsibility for payment of the settlement. To finance the settlement, they require debtors to deposit money into an escrow-like savings account every month in order to accumulate enough savings to pay off the settlement. In the meantime, they instruct debtors to stop making monthly payments while the settlement negotiations are ongoing.
The Dangers of Debt Settlement
Debt settlement might sound like a win-win situation, but it carries significant danger. Many debt settlement companies are unscrupulous and predatory, intentionally over-promising and giving false hope to debtors so that they can start collecting fees for services they have yet to provide. Some of the dangers and drawbacks include:
- Debt settlement companies do not typically promise that they can actually reach a settlement. You could be putting money into their account for months, and in turn failing to pay the monthly installments of your existing debt before you find out that the debt settlement company cannot settle with your creditor. Now you may find yourself in default or owing significant interest that could have been avoided.
- You still owe monthly payments as part of the settlement program. If you cannot meet your monthly obligation, you might wind up dropping out before some or all of the settlement can even be paid.
- Stopping payments on your credit cards or other debts can harm your credit score, rack up late fees and penalties, and have other adverse consequences. You may get calls and letters from your creditors demanding payment, even though you have “hired” a debt settlement company to handle it for you. It is unlikely that you can afford to keep making monthly payments and deposit money in the settlement account, rendering the program pointless and leaving you worse off than before.
- Many debt settlement programs are actually scams. Watch out for any debt settlement program that collects fees before actually settling any debt, tells you to stop talking to your creditors without explaining the consequences, or gives unrealistic guarantees like settling all of your unsecured debt for pennies on the dollar.
Is Bankruptcy Better Than Debt Settlement?
There are a lot of potential drawbacks to debt settlement, but if it works as promised, it can be beneficial. Look into the debt settlement company–what kind of fees do they charge? What guarantees do they make? How long will the settlement take? What are your obligations before they reach a settlement, to your creditors and to them? If they ask you to stop making payments, make sure they explain in detail what the consequences of nonpayment may be. They must also inform you that the money in their savings account is still yours to control, and you are entitled to any interest that accrues. It is also important to ask about the tax consequences of a settlement–the IRS may consider the amount of your debt reduction to be taxable income. A debt relief attorney can help you evaluate a so-called debt settlement program to determine if they can actually be of any help to your situation.
Bankruptcy, on the other hand, is a more straightforward and predictable process. Filing and pursuing bankruptcy does require handling complex forms and filings, but with the help of a qualified bankruptcy attorney you can anticipate the results in advance. Depending on whether you file under Chapter 7 or Chapter 13, you will either sell non-exempt assets and pay off a portion of your debt while discharging the remainder, or you will reorganize your debt into a repayment plan you will adhere to over the next three or five years. Bankruptcy will impact your credit score at first, but you can soon start building your score back up.
Talk to a seasoned Florida debt relief attorney to discuss your options and find the best path forward for you.
Seasoned Debt Relief and Debt Settlement Attorneys Ready to Help
If you are dealing with overwhelming debt and do not know where to begin, reach out to a seasoned and compassionate Jacksonville debt relief attorney at the Albaugh Law Firm for advice and representation. We offer free consultations for debt relief clients. We will walk you through your options for debt relief, discuss whether bankruptcy is the right move forward, and start you on the process. We will stay by your side for every step of your debt relief journey to help you build a better financial future. Call our Florida bankruptcy attorneys at 904-471-3434 today.
