How does debt settlement work?
There are many different ways to approach debt settlement. The most effective method is for the debtor to offer to pay the creditor a lump sum payment in lieu of the full balance that would be paid over time. The cash payment can be any percentage of the full amount owed. The actual percentage will vary, depending upon financial condition of the debtor, the age of the debt, the aggressiveness of the creditor or collection agency amongst other factors. There is no guarantee that the creditor will accept less than the balance owed. Some creditors are very aggressive, and demand high settlements. For some debtors, a cash payment is simply not feasible. For example, a consumer with $20,000 of credit card debt would typically have to pay a lump sum payment of $5,000 to $17,500 for debt settlement. If the debtor doesn’t have access to the funds to make a lump sum offer, some creditors will accept debt settlement in installments paid monthly. Once the creditor has agreed to accept less than the full balance owed and the debtor has paid the agreed amount within the agreed time period, the creditor can no longer attempt to collect from the debtor.
Because one of the goals of a successful debt settlement negotiation is to avoid going to court to resolve an unpaid debt, CaJacob Law Group can assist clients throughout the state of Ohio. Additionally, if an agreement is reached, all documents and payments can be handled electronically or through the mail. If the client prefers to meet in person, our office is easily accessible in Columbus, Ohio.
What are the consequences of debt settlement?
There is always a chance the creditor won’t accept any amount less than what is owed. Additionally, the creditor may not be willing to negotiate the balance down enough to make the debt settlement possible for the debtor. This would result in a failed negotiation. In situations where the negotiations fail, chapter 7 or chapter 13 bankruptcy may be the best option.
Paying less than you owe through a successful debt settlement negotiation may have consequences. First, most creditors will report to the credit reporting agencies, that the debt was resolved for less than the full balance. This will depend on the creditor’s reporting practices, but it may happen.
There are also potential tax consequences. The creditor may take a loss on the debt that isn’t paid through the settlement. If that happens, the creditor will send the debtor a 1099 for the amount not paid. That amount may be treated as income which could affect the amount of taxes you are required to pay.
Here at CaJacob Law Group we know that managing an overwhelming amount of debt can be significantly stressful. It can affect your life in more ways than you’d ever expect. Please contact us if you have any concerns about your debts. We offer a complimentary initial consultation. We really do want to help you. Put an end to that stress by contacting us today.