The current state of many families' finances is somewhat of a tragedy due to the lack of proper laws in place to protect consumers from outrageous fees and interest rates charged by the issuers of credit cards. Subsequently, people find that making even their minimum monthly required payments is nearly impossible, thus resulting in a search for the best path to become free from the grip of creditors.
Most people have a strong desire to eliminate their debt ethically and lawfully, and at the same time have that same desire to avoid bankruptcy. If you find yourself in this situation you may have conducted a great deal of research and learned that debt settlement may be an option you'd like to review further in an attempt to avoid bankruptcy.
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So, what exactly is debt settlement? Simply put, debt settlement is a popular choice for debt relief, whereby negotiations take place between the debtor (consumer) and their creditors to reduce the pay-off balance on their account(s) by 30%-75%.
Does this sound too good to be true? Probably - because debt settlement is not painless. Let's be realistic; creditors are not going to be receptive to every consumer who calls or writes, explaining hardship and expecting a gracious creditor to write off thousands of dollars worth of debt. If financial relief through debt settlement were that easy, every consumer owing money would be doing it.
You see, creditors won't even consider reducing the amount of money you owe them unless your accounts are significantly delinquent - typically anywhere from 90-180 days. Because of this delinquency, you can expect your credit score to decline temporarily - at least as long as your accounts are considered to be in a delinquent status.
Fortunately, reduced credit scores as a result of debt settlement are only temporary, and you'll notice a much-improved score after your credit report has been updated to reflect zero balances. Most people find that their score is "mortgage-worthy" within 9-12 months of completing the entire debt settlement process.
You might be wondering what legal action your creditors might take during this period of delinquency. Can they sue you? Certainly; after all, you owe them money and they are within their rights to take whatever actions may be necessary to collect that money. But, the question should really be: Will they sue you? It's possible, but not probable. You see, normally less than 5% of delinquent accounts actually end up in a courtroom. Creditors will typically prefer to settle your account before they send it to an attorney for litigation. And, even if the account does happen to end up with an attorney, it's more than likely that the account can be settled for less than the full balance through negotiations with the assigned law firm.
Of course, there may also be a possible tax liability as a result of debt settlement since creditors are required to report any forgiven debt that exceeds $599. Of course, an insolvency rule exists, which may exempt you from paying income taxes after debt settlement. To learn more about income taxes as a result of debt settlement, click here
In the end what matters most is that you're able to pay your debt off - whether through debt settlement, consumer credit counseling, debt consolidation, bankruptcy, or simply bucking down and paying it off, one creditor at a time. Please take the proper time to receive all the information you can regarding this type of debt relief, including the proper knowledge regarding how to choose a debt settlement company
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