If you have signed up with a debt settlement program or been tempted to do so, you need to know about three big problems most debt settlement programs and companies have. These programs promise easy, quick debt relief, but in truth, what they deliver is a lengthy process, often expensive monthly payments, and the real potential for creditor lawsuits.
The Promise of Debt Relief, Unfulfilled
Debt settlement programs promise quick and easy solutions to big problems. If you sign up, they claim that they will handle all the work to settle your debts, getting creditors off your back. In truth, here is the way most debt settlement companies work:
- They tell you to stop paying your creditors, so your debts may become seriously delinquent.
- They tell you to place the money you would have paid creditors in a separate account.
- After waiting around for 12 to 24 months, they try to use this money as a bargaining tool with creditors, hoping the creditors will agree to a reduced lump sum payoff.
- A debtor who agrees to a lump sum will owe taxes on the payment.
While this gambit sometimes works, creditors often become impatient during the 12- to 24-month wait. They are not receiving any payment during this period. Many creditors will initiate wage garnishment, file a lawsuit, or take other steps to collect the debt. It’s better to work with a lawyer to evaluate your options, which could include negotiating to settle some debts.
Expensive Monthly Payments
Debt settlement programs urge customers to make monthly payments into an account that will later be used to negotiate lump sum settlements with creditors. Unfortunately, the expensive monthly payments that they require are out of reach for many debtors. When you’re struggling to get by, having a large, required monthly payment that you cannot touch to help keep the lights on could be very unrealistic. There are better options for handling debt relief, such as filing for bankruptcy or consulting with a lawyer to negotiate your debts. During the bankruptcy process, many of your debts may get discharged, or (if you file for Chapter 13) you may have a more realistic monthly payment plan that takes into account your means and your daily needs.
Creditor Lawsuits
As mentioned above, creditors who aren’t getting paid may pursue lawsuits against debtors who try to use debt settlement programs. Learning that a creditor has sued you can be a tipping point to pursue better options beyond debt settlement, such as bankruptcy. Our law office often hears from prospective clients who have been sued by a creditor and need to learn about their options. Often, debtors need a solution that stops the lawsuits and endless collection phone calls. The bankruptcy process can help you with that.
Frequently Asked Questions
If I signed up with a debt settlement company, can I file for bankruptcy?
Yes. Trying debt settlement does not bar you from filing for bankruptcy. You can file for bankruptcy at any point in the debt settlement process, too. We recommend scheduling a consultation with a bankruptcy attorney to assess your unique situation. Our team helps some clients with debt settlement instead of bankruptcy, depending on their individual situations.
Can debt settlement help with my overdue mortgage payments?
Unlikely. Debt settlement programs are not effective for secured debts, such as mortgages. A secured debt has collateral (like your home) attached to it. Another example is a car loan. If you default on the loan, the mortgage company or car lender can repossess the property. When you’re behind on your mortgage payments, bankruptcy may be a better option for you.
I tried debt settlement, but a creditor just sued me. What should I do?
Consult with an experienced bankruptcy attorney for guidance. You may have the option to pause the creditor’s lawsuit while you pursue a bankruptcy discharge or payment plan. It’s essential to act promptly before the creditor’s lawsuit progresses, as failure to respond promptly could lead to further complications. Schedule a consultation to discuss your rights as soon as possible.
Learn About Your Options Beyond Debt Settlement Programs
If you’re struggling with debt and aren’t getting the relief you need from a debt settlement program, reach out to the Law Offices of Alexzander C.J. Adams, P.C. Our confidential consultations give Oregon debtors peace of mind knowing that they are taking concrete actions to reduce or discharge debt. Speak to a bankruptcy attorney at the Law Offices of Alexzander C.J. Adams, P.C. by calling us at 503-278-5400 or completing our online contact form. We look forward to hearing from you!
