Compare Debt Settlement to other debt relief options - Frequently Asked Questions


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First, How Debt Settlement Works:

A knowledgeable Certified Debt Specialist will provide consumers with an affordable monthly Debt Settlement Program payment plan. The monthly payment is determined by evaluating the consumer's individual situation and their ability to make payments. These unique programs allow consumers to save each month in their own savings account and see results faster.

Debt settlement companies will work on the consumers behalf, contacting their creditors and collection agencies to let them know the consumer has enrolled in their program and also to advise them of the consumer's interest in settling the unsecured debt with them. Once they have reached a settlement with the creditor or collection agency, the debt settlement company will obtain that settlement offer in writing from the creditor and advise the consumer client on how to disburse their saved settlement funds accordingly.

Debt Settlement does not assume or pay any consumer debt. If the consumer stops making monthly payments to their creditors, late fees and interest will continue to accrue. Collection activities may continue including lawsuits that may be filed.

Below are the 10 of the most common questions and answers regarding debt settlement.

Question 1: Can a Debt Relief or Settlement Company Provide Legal Advice?

Answer 1: Only if the debt settlement company is a law firm.

Question 2: How Long Does a Debt Settlement/Relief Program Last?

Answer 2: The time needed to produce a settlement depends on a number of factors, but typically most debts are settled and paid off in 12 to 36 months. Various factors that affect how long debt settlement can last include; your financial hardship, the age and balance of unsecured credit accounts, the funds you have available to pay for a settlement, and the willingness of individual creditors to enter into debt settlement negotiations.

Question 3: How much will I be expected to save towards my debt settlement(s)?

Answer 3: It depends on how much money you have available now and how much money you can afford to save each month before you reach the debt settlement amount. You may be eligible to make your settlement in three installments, but it depends on your creditors and the amount of debt you owe.

Question 4: Is the amount I save on my settlement(s) taxable?

Answer 4: Yes. If you save over $600 or more on what you original owed in debt, you are required to pay taxes on that amount, based on your income tax bracket. Some people however, may be excluded from paying taxes on the debt forgiveness, if their assets equal less than the total amount forgiven. It is best to see a CPA or lawyer to understand further about your IRS responsibility for any forgiven debt.

Question 5: What are my responsibilities once I enroll in a debt settlement program?

Answer 5: You are responsible for paying all fees, taxes and the actual amount, of the debt settled. Unlike consumer counseling companies, debt settlement companies do not take or make payments to creditors on your behalf. So your payments need to be paid on time and directly from you.

Question 6: What do the debt settlement company’s fees cover?

Answer 6: The fees paid to debt settlement companies are intended to compensate the company for its work. Debt settlement fees are NOT set aside to help fund debt settlements, those funds need to be set aside by the consumer, and the debt settlement company is paid separately for their services.

Question 7: What is debt settlement?

Answer 7: Debt settlement is a negotiation method or debt reducing service that allows third-parties to negotiate debt, on the consumer’s behalf, with creditors. Negotiations are pursued by the third-party in order to reach a mutually agreeable settlement between the consumer and the creditor on the amount of debt owed.

Question 8: What is the goal of a debt settlement program?

Answer 8: A debt settlement program is intended to negotiate a mutually agreeable settlement between the consumer and their unsecured creditor(s). Unfortunately, every circumstance is different and no specific results can be predicted or guaranteed.

Question 9: When does the debt settlement company communicate with my creditors?

Answer 9: Communications with the creditors are handled on a case-by-case basis.

Question 10: Will all of my creditors and/or third party collectors negotiate with debt settlement companies?

Answer 10: Most of the time yes but debt settlement companies cannot force negotiations or creditors to accept a settlement. Your creditors can and may continue collection efforts on delinquent accounts, even if you are currently enrolled in a debt settlement program. However, most will back off as they would rather collect some of your payments towards your unsecured debt, rather than none, as with bankruptcy.


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