THE TRUTH ABOUT DEBT SETTLEMENT SERVICES

Debt Settlement Services are not as consumer-friendly as the industry presents it:

• One woman didn’t realize she would face a tax bill on her forgiven debt.

• Another man opted against bankruptcy in part because he erroneously thought he would lose his personal possessions (wrong).

• Another woman was shocked after enrolling in Debt Settlement Services, at how far her credit scores tumbled and how much interest she was charged when she applied for a new car loan, and the negative impact on her credit report extended for years, as is typical with the process of completing a debt settlement program.

Where debt settlement falls short

Here are some of the biggest problems with debt settlement:

Negotiations can take years. Customers are told to stop paying their credit cards, loans and other debts and funnel money instead into a savings account. Freedom Financial Network, the nation's largest debt settlement company, says half of its customers eventually settle at least 75 percent of their debt, but the process usually takes three to four years!  During this time, customers endure the constant risk of being sued over their debts.

The math often doesn’t work. Debts are reported to be settled for 45 percent to 50 percent of the current balance, however this is misleading because this amount is often higher than the initial balance, because of late fees, penalties and interest.  On top of this problem, the typical debt settlement fee is 20 percent of the debt at the time of enrollment. 

 

On top of all that, the forgiven debt is reported to the IRS as taxable income! 

This means that when the Debt Settlement Program is done, with inflated balances, and a 20% fee charged by the Debt Settler, a consumer in a 25% tax bracket can expect to pay about 90% of the original debt balance owed, and this is considered a successful result!  However, the successful result is only in the pockets of the Debt Settlement provider, which is profiting from consumers' credit problems!

Many debt settlement companies actually spread false information about bankruptcy.  National Debt Relief, another large debt settlement company, claims on its website, “Declaring Chapter 7 bankruptcy may mean saying goodbye to most of the assets that you’ve accumulated over the course of your life.” In reality, very few people who file for Chapter 7 lose any assets at all, and instead erase most if not all of their debts in two to three months.

Debt Settlement companies also claim that bankruptcy is harder on credit scores. In reality, credit scores begin to recover immediately after bankruptcy. The main difference, of course, is that Chapter 7 bankruptcy typically takes months, while debt settlement typically takes many years.  Plus, only bankruptcy halts any collection activity, including lawsuits, garnishments, and foreclosures.

When it comes to cost, effectiveness, and rebuilding credit, “the one option that shines above all the rest is bankruptcy,” says Steve Rhode, a former credit counselor. “It’s the cheapest and fastest and the best way to rebuild your credit" and deal with creditors and your debts, and protect you and your families' property.

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Mark Williams, Guam's Best Lawyer, on Dededo Law Office's websites: www.guamlegal.com www.bankruptcylawyerguam.com  www.injurylawyerguam.com