Although filing bankruptcy may provide financial freedom for many people, it is not always the best route for every individual. As such, many people seek other methods, such as debt settlement, to pay off their debts in a shorter period of time. Since no two cases are identical, it is important to explore your options with an experienced Central Valley debt settlement attorney if you are debt-stricken.
What Is Debt Settlement?
Debt settlement, also commonly referred to as debt relief or debt adjustment, involves offering a lump-sum payment to a creditor in exchange for a portion of your debt being forgiven. In order for you or your attorney to negotiate a debt settlement plan, it is important to stop minimum monthly payments on that debt, which incur late fees and interest damage to your credit score.
Once debt settlement is reached – whether it is a lump-sum reduced amount, a lower monthly payment or a debt discharge – you will need to agree to the new terms. This must happen for a settlement to move forward, but you are not obligated to agree to the new terms. Depending on how the debt was settled, you will make payments to the company handling your debt until your outstanding debt is paid in full.
Is Debt Settlement the Right Option for Me?
No two cases are identical – especially when it comes to debt settlement. However, debt settlement is typically the right option for the following types of individuals:
- People who cannot file bankruptcy because of a recent filing
- People who have an income that is considered high
- People who possess an ample amount of assets
- People who have reasons, moral or religious, that oppose the idea of bankruptcy
Debt Settlement: Advantage v. Disadvantage
Debt Settlement Pros:
- The biggest benefit to settling your debts is complete and immediate relief from financial stress.
- In most situations, settling your debt does not damage your credit as severely as filing for bankruptcy.
Debt Settlement Cons:
- Under California law, the written-off debts must not exceed a certain amount. If they do, the difference becomes taxable income. In such cases, you could end up owing taxes on some of the debt that was settled or forgiven. Depending on your specific financial situation, this could get expensive.
- Unlike bankruptcy, debts settlement does not offer consumers legal protection from creditor lawsuits. In other words, when you file for bankruptcy, creditors are legally obligated to halt all attempts to collect payment, such as creditor calls or legal action against you. However, if you decide to settle your debt, creditors can still sue you for any outstanding debts.
Call an Experienced Central Valley Debt Settlement Attorney
If you are facing financial problems and drowning in debt, it is in your best interest to consult with an experienced debt settlement attorney to help you learn your legal rights and options.
For more information or to schedule a complimentary consultation with Central Valley bankruptcy attorney Gurjit Srai, please call 209-323-5558, or complete our online form.