2 Responses to “credit card debt settlement agency question……?”

1. R J
   July 29th, 2009 @ 9:41 am

   Debt settlement companies are not particularly a good idea. Why don’t you state your problem and solicit input? RJ
   References :

2. Heather
   July 29th, 2009 @ 9:51 am

   What does a debt-settlement company do for you? In theory, it’s supposed to help you negotiate your debts. In practice though, that doesn’t really happen, says Porter. During the two or more years that you’re saving money — typically in an escrow account that the debt-settlement company has access to — the company does nothing but withdraw fees. "A lot of consumers think they’ve taken care of the problem after contacting a company, but the reality is the debt-settlement company hasn’t settled anything in the beginning," Porter says.

   The companies also claim that they’ll help you dodge collections calls. But referring collections calls to your debt-settlement company often backfires, says Leslie Linfield, executive director at the Institute for Financial Literacy, an organization that provides prebankruptcy counseling. "Many creditors, once they know a client is working with a debt-settlement company, will escalate the account," she notes. That means sending it to a collections agency sooner or even suing you. And when a creditor takes legal action, the debt-settlement companies drop the account: They don’t have the right to give legal advice or represent you in court.

   High drop-out rates
   While there’s no independent research on the average success rate of debt-settlement programs, anecdotal evidence shows many consumers drop out before the company reaches a settlement with their creditors, Linfield says. "As you talk to bankruptcy attorneys you’ll hear horror stories of clients who paid thousands of dollars to a company and they’re still in the exact same place," she says.

   Consider what happened at National Consumer Council, which was shut down by the Federal Trade Commission in 2004 on accusations of falsely claiming nonprofit status. The company’s court records show that only 1.4% of the consumers who signed up for the program ever completed it. Nearly half — 42.9% — dropped out, paying an average of $1,780 in fees and saving $966 in their escrow accounts.

   What debt-settlement companies won’t tell you
   1. Debt settlement may not be right for you
   Debt settlement is a niche solution that’s right only for a small segment of the population, says Charles Phelan, founder of ZipDebt.com, who coaches consumers on do-it-yourself debt settlement. But don’t expect to hear that from a debt-settlement company. "People working the desks at the debt-settlement companies are working on commission and have the incentive of bringing as many people as possible," he says.
   You could be a good candidate for debt settlement if you’re heading toward bankruptcy, but don’t qualify for filing Chapter 7, Phelan explains. (Under Chapter 7, most of your unsecured debts are written off, but you’ll most likely have to sell some property including your home). "Most people who can qualify for Chapter 7 in all likelihood lack the cash flow to make debt settlement work for them," he says. Debt settlement, in other words, might be a viable alternative to Chapter 13, which sets up a three- to five-year schedule with your creditors to repay your debts. (For more details on qualifying for Chapter 7 or Chapter 13, read our story.)

   Likewise, if you can scrape up the cash to pay off your debts in a debt-management program, where you work with a debt-management company to pay off your balances in full but with lower interest rates, then debt settlement isn’t the best solution.

   2. Your credit will suffer
   Creditors don’t settle unless you’re severely behind on your payments. That means one thing: Debt settlement is damaging to your credit. Just how damaging it is depends on your track record. If you’re already behind on payments, your credit will suffer less than if you’ve managed to avoid delinquencies and credit charge-offs.

   3. You could get sued
   With bankruptcy, creditors have to stop collections efforts as soon as you file. That’s not the case with debt settlement. Even if you inform your creditors of your efforts to settle, they won’t stop trying to collect, Phelan says. Worst-case scenario, they could sue you for the amounts you owe. Should that occur the only way to avoid a black mark on your credit record would be to pay off the debt in full.

   4. There are tax consequences
   Debt settlement is a taxable event. Any forgiven balance that exceeds $600 is taxable income, says Linfield. "Sometimes that tax event can put people in worse shape than they were in to begin with," she says. Consider this: If your tax rate is 15%, $5,000 of forgiven debt will carry a $750 tax liability. That’s a debt that the IRS won’t forgive. (Read our story for advice on what to do when you can’t pay your taxes.) One exception: If you’re insolvent — namely your assets are less than your liabilities — you can petition the IRS to waive that tax liability by filing form 982.

   5. Our services might be illegal
   While the laws regulating debt-settlement companies vary greatly by state, it’s worth noting that 12 states currently prohibit for-pro
   References :
   http://www.smartmoney.com/spending/deals/debt-settlement-could-cost-more-than-you-think-21442/

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