There are a lot of people who fall into a debt trap, and they find themselves thoroughly overwhelmed by financial problems. As a consequence, you can start to consider several options to getting your financial burdens lessened. One such viable option is to go for the debt settlement. However, with debt settlement, you will have some questions regarding the process and its certain nuances. In this article, you will learn about certain critical, such facts which you must know before you apply for debt settlement.
- Do you have to pay any taxes on the money that you save?
Yes, you might have to pay some income taxes on that amount which you are able to save. However, this amount is in general quite less than the amount which you are paying in interest. You must check your accountant for more details.
- Can you leave accounts out in debt settlement?
You must not leave any accounts out of debt settlement, for basically two reasons:
- a) There are high chances that your credit company will be able to find delinquencies in this and your other accounts, and then they will close that account anyway.
- b) It will be extremely difficult for you to negotiate with a lot of creditors in case they see that you are defaulting on certain accounts and thereby hurting the settlement process.
- What credentials should you be looking for in a debt settlement company?
Debt settlement companies must be members of the professional organization which specializes in such debt settlement negotiations. Such organizations include The Association of Settlement Companies and our Professional Debt Arbitrators and Trained and Certified by The International Association of Professional Debt Arbitrators.
Code of ethics which you must follow
- Debt settlement does not mean that you stop paying to your creditors. You will only be allowed to make certain independent decisions and stop making monthly payments. This is to ensure that as soon as your account goes into collections than you can settle it quickly.
- Debt settlement will not be able to stop your original creditors from calling you. Collection agencies will stop with the starting of the debt settlement process. Till the time the original debt gets sold to a collection agency, your original creditor will have all the rights to call you.
- After you have settled a debt with your collection agency, it will be showing on their credit reports as paid ad settled. The credit reports will also show that collection agencies were involved and that creditors had charged them off.
- Debt settlement cannot stop the creditors from adding subsequent interests, penalties and fees after you enter into a debt settlement with them.
- If you are current while settling debts, it will then initially be affecting negatively your credit score. If you are already having accounts in the collections, it will have almost little and almost no effect because it has been already tarnished. If they continue to give mortgages and car payments that will be quite helpful but the main fact is that this can only be temporary.
- If you are planning to buy yourself a home, get a car loan or something that required decent credits. If you are recurrent on your bills, you must wait until till the time you have completed such types of transaction to realize the completing depth of your financial picture and then go on to enter in the debt settlement process. If you can advocate that this would run counterintuitive to the central essence of debt settlement. Many get declined to get approvals of mortgages and cars, etc because of earlier bad debts in collections which have not been paid in many years. A quickened up process will get you everything cleaned and then settled up, and that will save thousands of dollars in such payoffs.
- Yes you can get sued if you stop paying debts. You must learn that you have to answer lawsuits and then go to the court. The court will then acknowledge the fact that you owe money. It will be an unsecured debt, thus basically the creditor will be right back where he started. Negotiated settlements on such accounts can get you liens when they are paid.
- Will there be a lien on your house: Absolutely, if creditors place lien placed on a debtor’s house, they will not be able to collect the money until the house gets sold. Settlements with lien holders can lift liens altogether.
- It is an alternative bankruptcy. Remember that this information will be able to help people who are absolutely neck deep in debts and have no alternatives regarding solutions.
- Predicting your credit scores is almost impossible. Debt settlement companies will not know what credit score you will have when you finish the negotiated debt settlements. It will be clear that it will fall when you start doing it. This will improve when your payment is finished.
- Will there be tax liabilities on the money which has been settled? Yes there can be some tax liabilities. If someone gets negative net worth then they will not be responsible for the taxes on the money that the debt settlement company saves them. Debt settlements are not accountants, and they won’t give you any such devices either. You will be responsible for all the taxes you incur and what you did not have pay when you had the original debt.
You must consult debt settlement reviews of companies before you apply for debt settlement process.
Wrapping things up
Some so many people are steeped in debts and financial problems, and they have no idea how to get out of this situation. Debt consolidation and debt settlement are two easy methods to come out of these situations. IT will be vital that you know how these processes work before you apply for them. Hopefully, this article would have helped you in this regard.