Should I Try Debt Settlement First?
Today’s financial services offer you many alternatives to filing for Chapter 7 bankruptcy. Ursulova Law Offices wants you to understand your options, so you can make the best decision for your situation. Our Brooklyn bankruptcy attorneys can help you regardless of which option you choose.
What Is Debt Settlement?
The act of debt settlement refers to an agreement you make with a creditor to pay a portion of the debt owed. The creditor agrees to write off the rest.
You must be careful when using this option. Get the agreement in writing and have a Brooklyn bankruptcy attorney from our office review it before you sign it. It needs to stipulate that it is a final and binding agreement. Without this statement, the creditor can come back later and demand the rest of the debt.
Unless you write it into the agreement that they cannot, the creditor can still sue you after you paid the settled amount. Without having a bankruptcy lawyer Brooklyn trusts look it over first to ensure the contract you sign contains all of the necessary verbiages, your creditor could still sue you.
Settling your debt can affect your taxes. While the creditor gets to write off the bad debt, you have to count it as income. The creditor reports the write-off to the IRS. They mail you a 1099 form that shows the debt as income. The income of the debt forgiveness can put you over the entry point to a higher tax bracket.
With larger debts, you’ll still need a significant amount of money to pay off the settlement. Most creditors will only discount you up to 40 percent of the total debt. You would need to have 60 percent of the funds available to pay off the settlement.
Otherwise, you’d need a loan for the money. You may currently only have unsecured debt, but taking out a personal or consolidation loan means putting up collateral, such as your vehicle or home. If you can’t pay the loan back, you default on the loan. Unlike getting behind on your credit cards, though, this means you lose the collateral – your house or your car.
You can try debt settlement first if you have about 60 to 80 percent of the debt saved, otherwise, it isn’t advisable. You can either have your Brooklyn personal bankruptcy attorney negotiate the settlement for you or you can use a debt counseling firm, or you can negotiate the debt reduction yourself.
You also have a few other options to consider besides debt settlement. Ursulova Law Offices can provide the debt management or bankruptcy attorney Brooklyn residents like you need to solve your debt problems.
Debt Consolidation Loan
You could take out a debt consolidation loan, but you’d run the same risks as taking out a loan for paying a debt settlement. You would transition from unsecured debt to secured debt, putting any collateral you put up in jeopardy.
Debt Consolidation Plans
You can work with a debt counseling service to create a debt consolidation plan. In this option, a counselor at the debt counseling service contacts each of your debtors to negotiate a lowered debt or lowered interest rate or both. Once they have negotiated this, they consolidate the information and you pay them one payment each month, which they distribute to each creditor for you. Two caveats exist. First, your creditors don’t have to participate, so you’ll still owe a lot of potentially unmanageable debt to some while paying off the more reasonable creditors. Second, you can’t re-negotiate. If you fall ill, lose your job, etc. you still owe the full payment each month.
You can file for Chapter 7 bankruptcy. It will remain on your record for seven years. During that time, you can’t get new credit cards or loans, even if you manage to re-establish yourself, you’ll have to wait until the bankruptcy falls off of your credit report before any creditor will take a chance on you.