Be Wary of Debt Settlement Companies: Bankruptcy May Be Your Best Option

In their desperation, many people turn to debt settlement companies for help with their financial problems. Unfortunately in doing so, many folks can actually worsen their financial situation.

Debt settlement companies have exploded in number in recent years. Their commercials promise to settle your debts for a fraction of what is owed. What they don’t say in the commercials is that debt settlement fails for about two-thirds of those who try it, pushing many of them into the bankruptcy that they were trying to avoid.

In addition, there is evidence of the financial danger that debt settlement companies pose to consumers. The Better Business Bureau has called debt settlement an “inherently problematic business.” Also, the Federal Trade Commission, the Government Accountability Office and attorneys general in 41 states have uncovered evidence of abuses by many such companies.

Debt settlement can be a financial trap

Debt settlement companies are pro-profit institutions that attempt to negotiate with your creditors to reduce the amount you owe. For this service, they generally charge very high fees-some as high as 15 percent of the debt owed. Some of the other shortcomings of the debt settlement process are:

  • Debt settlement companies will often charge you even if they did not successfully settle your debt.
  • Unlike other debt relief processes, creditors do not have to work with debt settlement companies. If the settlement attempt was unsuccessful (or the creditors refuse to settle), you could have to pay interest or late fees, adding to you debt.
  • If any debt is forgiven during the debt settlement process, it is taxable as income.

Bankruptcy can offer real relief

If you are overwhelmed by debt, bankruptcy is often a better option than debt settlement. Some of the advantages that bankruptcy has over debt settlement are:

  • Bankruptcy costs much less than debt settlement companies.
  • Any debt that is reduced or discharged through bankruptcy is not taxable.
  • Bankruptcy can stop foreclosures, garnishments, car repossessions and collection phone calls, as creditors are legally required to work with you.
  • Bankruptcy attorneys are required to act in your best interests.

Although bankruptcy is a powerful tool, it is not the right tool for everyone who is having financial difficulties. If you find yourself in this situation, call me to discuss your matter. As an experienced bankruptcy attorney I will consider your individual situation, advise you whether bankruptcy is right for you and inform you of your debt relief options.