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The National Association of Consumer Attorneys has issued a consumer alert calling debt settlement companies the “#1 threat facing deeply indebted Americans.” According to the report, most people who use such settlement services end up in worse financial shape than before.
Debt settlement companies are private, for-profit negotiators that purport to negotiate with debt collectors on a consumer’s behalf. Their business model functions by charging fees for every successful settlement, and sometimes they will charge fees without even settling a debt.
Some of the inherent problems with the tactics that debt-settlement companies use include the following:
· They encourage consumers to default on their debts – generally, a creditor will not negotiate a settlement on a debt while the debts is in repayment. As a result, debt collection companies advise consumers to stop paying on their debts, so that they can negotiate a lower settlement amount. What they do not tell consumers is that default can often result in other negative consequences, such as being sued, extra fines and penalties, higher interest rates, or wage garnishment.
· Sometimes the creditor refuses to settle – there is nothing that ensures that a creditor will settle on a defaulted debt. If they refuse to settle, the consumer can be sued for the full amount, including any additional interest or fees that accumulate after the default.
· These programs do not work for most people – according to the Federal Trade Commission, less than 10 percent of consumers successfully complete debt settlement programs
· Even for consumers who have debts successfully settled, there may be unexpected costs – many consumers do not realize that forgiven debt can be treated as taxable income. In other words, if substantial debts are settled for significantly smaller amounts, that difference could be imputed as income for tax purposes.
· The problem with debt settlement is not limited to particular providers; the industry itself encourages consumers to break legally enforceable obligations to creditors.
Unlike debt settlement, bankruptcy is a legal option that does not require you to break any contractual obligations. It operates as a legitimate method through which consumers facing financial difficulty can receive a fresh financial start. If you are facing default, foreclosure, garnishment, or repossession, you should consult with an experienced St. Louis bankruptcy attorney as soon as possible. Debts can often be discharged in bankruptcy, and are done so without any negative tax consequences.
The Westbrook Law Group practices exclusively in the area of bankruptcy law, and is dedicated to obtaining the best result possible in each case we take. We are conveniently located in St. Charles, Missouri and also have a satellite office in Troy. We offer free initial consultations, and have evening and weekend appointments available by request. Our rates are competitive, and we only recommend bankruptcy to clients that we believe will benefit from filing. To schedule your free consultation, call us today at (636) 493-9231. If you would prefer, please fill out the contact form available to the right and a member of our staff will be in touch with you shortly.