1.      What happens to my credit?

Once a debt is settled, the settlement is reported to the credit bureaus.  Settled accounts are positive compared to bad debts or bankruptcy.  In some cases, especially with clients who have pristine credit before starting the process (which is rare), the credit rating may decline on the front end until the debts can be cleared up, whereupon the rating will improve again.  But most clients experience an overall improvement in their credit file once the settlement has been completed.  There are also several useful techniques for self-repairing your credit later on.  Of course, credit is an important thing to have, but obviously your first priority should be to clear up your debts and get back on your feet financially.

2.      How does the debt negotiator get paid?

Good debt negotiators charge a fee that is based on the amount of savings they achieve.  When the fee is structured in this way, the client is always in a NET SAVINGS POSITION.

3.      Is this legal?

Absolutely!  You have the right to appoint a third party to represent you in debt matters.  While we are not attorneys and we do not furnish legal advice, we have settled debts with the largest credit card banks in the nation on behalf of our clients.  The service we perform is perfectly legal in all 50 states.

4.      What are the tax consequences?

Banks are supposed to report canceled debts exceeding $600 to the IRS and you are supposed to report the same as income on your annual tax return.  However, the IRS permits you to write off any “income” from canceled debts up to the amount by which you were “insolvent” at the time.  So unless you have a positive net worth, which is highly unlikely if you're deep inside debt, then you ordinarily won't have to pay taxes on the forgiven amounts.  PLEASE CONSULT WITH A TAX PROFESSIONAL.

5.      What about lawsuits?

Lawsuits are far more rare in debt matters than most people think.  Some debtors fall behind, don't make payments for years, and never hear from a single attorney.  Of course, the bank has the right to sue you to recover their money.  But generally, if you keep up dialogue (through your negotiator) with the bank, they would prefer to work out a solution rather than sue.  In fact, lawsuits are one of the chief reasons that many people are reluctantly forced into bankruptcy.  However, when you take the debt negotiation approach, lawsuits can normally be avoided if you're willing to work out an arrangement with your creditor.

6.      What can happen if I do get sued?

The three worst things we have experienced as a result of a law suit are: seizure of bank accounts, garnishment of wages, and the placing of a lien on real property.  In most cases, the judge will ask if you owe the debt and if you can pay it.  Well, you do owe the debt and no, you cannot pay it.  This type of situation typically results in a judgment for the creditor.  Some states allow for bank account seizure.  Some states have a worksheet to fill out to help determine how much - if any - of the debtor’s pay can be garnished.  Some states do not allow the creditor to place a lien on their home.

7.      Can my wages be garnished?

A common tactic used by aggressive debt collectors is the threat of wage garnishment.  If you're already struggling financially, nothing is scarier than the prospect of having money taken from your paycheck without permission.  Collectors try to make it sound like this will happen on your very next payday if you don't send a check immediately.  This, quite simply, is false.  The creditor first has to sue you, obtain a judgment, and then file for a garnishment action.  See Question 5 above.  If you're willing to work with your creditors through your negotiator, all this can easily be avoided.

8.      Can I do this myself?

Certainly, however, any discounts achieved doing the work on your own would not necessarily be as deep as those obtained by a professional, and you would have to spend countless frustrating hours in the process.

9.      Will I still be able to use my credit cards?

No.  Since the banks are giving up half or more of the money you owe, they will, of course, discontinue your credit privileges.  However, many clients keep current on one card with a small credit line for emergency purposes.  Our Budget Planning Department will advise you on this matter.