Debt Settlement

Debt settlement is built around the idea that creditors will be happy to accept less than the total amount due if you do not make your payments. So, you avoid paying your debts directly, and you make payments to the settlement firm. The settlement firm then pays your creditor (assuming they negotiate a settlement). There are two types of settlement they may negotiate. In a lump sum settlement, the firm makes one large payment to the creditor. In a term settlement, the firm makes multiple payments to the creditor over a period of time.

Usually, debt settlement is only used for credit card debt, but some agencies may market settlement services for other debts, like student loans, medical bills, back taxes or other unsecured debts.

Call us at 833-715-1148

The fees charged by a debt settlement firm may vary depending on your state’s laws. You can expect the firm to charge you between 15 and 25 percent of the enrolled debt. So, if you have a $10,000 debt that you settle for $5,000, you may also owe the firm $2,500 (25% of the enrolled $10,000.) In 2010 the FTC banned “advance” fees, so now debt settlement agencies cannot charge you before they render services. Forgiven debt is considered taxable by the IRS if over $600. This means you will likely owe taxes on the difference between the amount you owe and the amount you agree to pay. If you settled that $10,000 debt for $5,000, then $5,000 was forgiven. That $5,000 is likely to be taxable income, that will have to be reported on your income taxes. The debt settlement process typically takes three-to-four years. First, you have to put ample funds into the settlement account. Then, the settlement firm has to negotiate multiple agreements with your various creditors, which can take significant time.